If you have suffered loss on an investment or you are unable to access your capital because your investment is illiquid, you may be entitled to pursue a complaint or legal claim on the grounds that the instrument was mis-sold to you. When faced with the consequences of an unsuitable investment, it is important to consider your options carefully and to act without delay.
Grounds for complaint
It is common for investments to be sold on an advised basis. Advising on investments (such as investment funds or shares in unlisted companies) is a regulated activity. Firms carrying on this activity are generally required to be authorised and regulated by the Financial Conduct Authority (“the FCA”) and to comply with the FCA’s rules. Firms that fail to comply with their regulatory duties in relation to their customers may be liable not only to enforcement action by the FCA, but also to claims by customers to compensate them for any losses they have suffered as a result of the firm’s breach of duty.
Amongst other things, each firm must conduct its business with due skill, care and diligence as well as paying due regard to the interests of its customers and treating them fairly. In addition, any investment advice provided to customers must have been suitable for them, based on their knowledge and experience of investments, financial situation and investment objectives.
There are also detailed rules surrounding the promotion of financial instruments whereby firms must pay due regard to the information needs of its customers and communicate with them in a way which is clear, fair and not misleading. Further, there are rules which prevent the promotion of unregulated collective investment schemes and other “non-mainstream pooled investments” to retail clients that are not certified as high net worth or sophisticated investors.
Where an investment is sold without advice, the firm that promoted it will nevertheless be subject to the same FCA rules regarding its communications. The firm may also have been obliged to assess whether or not the investment was appropriate for you, based on your knowledge and experience.
If an investment is made through a self-invested personal pension (“SIPP”), the operator of the SIPP will also owe regulatory duties to its customers. SIPP operators are not generally responsible for the suitability of the investments within a SIPP. However, they are required to undertake high level due diligence on intermediaries to ensure that they have the appropriate regulatory permissions and that they have not previously faced regulatory or disciplinary action. SIPP operators must also take responsibility for the quality of assets within the SIPPs they administer and to ensure that they have appropriate procedures in place to enable them to identify possible instances of customer detriment, such as unsuitable investment advice.
If there are sufficient grounds for complaint, there are a number of options available to you if you wish to take action.
Complain to the Financial Ombudsman Service
If you have suffered loss of under £150,000, the most suitable option would likely be to make a complaint to the Financial Ombudsman Service (“the Ombudsman”). The Ombudsman is an independent public body established to resolve disputes between consumers and FCA authorised firms. The Ombudsman has the power to instruct FCA authorised firms (or firms that used to be authorised by the FCA or the Financial Services Authority to make payments to complainants of up to £150,000.
The aim of the Ombudsman is to resolve disputes by recommending solutions or making decisions as quickly and cost-effectively as possible on the basis of information, facts and arguments presented by each side. The Ombudsman’s service is free of charge, although it can take some time to reach a final decision after all information has been exchanged. The Ombudsman may also refuse to investigate any complaints which it considers are too complex and are more suitably dealt with through court proceedings. Individuals and small businesses (i.e. those with less than 10 employees and turnover or annual balance sheet of no more than €2 million) are generally eligible to complain to the Ombudsman. A decision of the Ombudsman is final and binding on the firm, if it is accepted by the customer. If the firm fails to comply with the Ombudsman’s decision, the customer has the right to enforce the decision through court proceedings. The firm may also face action by the FCA, if it fails to comply.
It becomes more difficult to take action through the Ombudsman if you have dealt with a firm that was not FCA authorised but should have been. If the firm that sold you an investment was based in the UK but was not FCA authorised, you will not be able to complain to the Ombudsman. Similarly, the Ombudsman does not generally cover non-UK financial services businesses.
Before complaining to the Ombudsman you must write to the firm concerned. If the firm does not deal with your complaint to your satisfaction, you have the right to complain to the Ombudsman. However, you must do so within six months of receiving the final response from the firm or the complaint may be time-barred.
Similarly, the Ombudsman will not be able to deal with a complaint if you refer it to them more than: (1) six years after the event complained of; or (if later) (2) three years from the date on which you became aware (or ought reasonably to have become aware) that you had cause to complain.
Take action through the courts
If the firm you dealt with is not FCA authorised or your loss is more substantial than £150,000, you may need to consider pursuing a civil claim through the courts, where there are no limits on whom you can claim against or the amounts you may be awarded (so long as you have an actionable claim). Court proceedings are generally more time-consuming and expensive than complaints to the Ombudsman, due to the significant amount of legal and factual information that the parties are required to exchange in advance of trial. There is also a court fee of up to £10,000 when you formally issue your claim, depending on the value of the losses you are seeking to recover.
The general rule under the Civil Procedure Rules relating to court proceedings in England and Wales is that the unsuccessful party will pay the successful party’s recoverable legal costs of the proceedings, in addition to their own legal costs. The successful party will very rarely recover the full amount of their legal costs, which will be assessed by the court on the basis of what is reasonable and/or proportionate, if the amount cannot be agreed between the parties.
There are also time limits to consider when bringing court proceedings, depending on the nature of the claim. Claims in relation to financial mis-selling would either be under the law of contract or the law of tort, for breach of statutory duties and/or professional negligence. There is a strict time limit in the case of contract law of six years from the date the breach of contract occurred (usually when the investment was mis-sold). Whereas claims in tort can be brought within six years of the date the investment suffered a loss or, if out of time, three years from the date you became aware of the material facts of your claim (subject to a longstop of 15 years). In the case of fraud or where the investment firm has concealed the basis of your claim, you have six years from the date the fraud or concealment has been discovered or could have been discovered with reasonable diligence.
In view of the costs and inherent risks associated with court proceedings, it is always advisable to investigate whether the firm you are claiming against has the capacity to pay a successful award in your favour before issuing a claim. Small investment firms in particular often lack the funds to meet substantial court orders. Whilst all investment firms are required to obtain professional indemnity insurance to enable them to meet successful claims, the insurer is entitled to refuse to pay under the policy, if the firm breached the terms of its insurance; for example, where the unsuitable investment was expressly excluded in the insurance policy or in the case of fraud. Many insurers expressly exclude claims in relation to unregulated collective investment schemes.
Claim from the Financial Services Compensation Scheme
If you have a favourable decision from the Ombudsman or a court order in your favour but the relevant firm is unable to pay you, you may be able to make a claim to the Financial Services Compensation Scheme (“FSCS”). Alternatively, if you are aware that the relevant firm has been wound up or is in the process of being liquidated it may be that the only option available is to go direct to the FSCS. The maximum level you are able to claim from the FSCS for investment business is £50,000 per person per claim. There is no statutory time limit on making a claim to the FSCS. However, the FSCS will determine your claim on the basis of whether the Court would be likely to make an award in your favour (if it has not already). It is therefore possible that significant delay could prejudice your ability to make a claim.
There are a number of options available to you if you believe that you have been mis-sold an investment. However, it is always advisable to obtain legal advice on the best route available to you as soon as you believe you have cause for complaint. Failure to do so could result in the potential complaint or claim being time-barred, which would mean that your only option would be to seek recovery from the FSCS (where claims for investment business are limited to a maximum of £50,000).