Full Circle Asset Management Ltd v. Financial Ombudsman Service and others [2017] EWHC 323 (Admin)

February 2017 saw the High Court dismiss an application for judicial review relating to a decision made by the Financial Ombudsman Service (FOS).

Full Circle recommended to a customer (Mrs King) that she should open an investment account which Full Circle would manage. On Mrs King completing an “attitude to risk and loss” questionnaire, Full Circle recorded her as a “medium risk investor”. Mrs King lost £90,000 over 15 months and complained to FOS on the basis that investments were made into funds which were too risky for a standard retail client.

Section 228(2) of FSMA 2000 states that FOS must determine complaints by reference to what is fair and reasonable in the circumstances of the case. This must be read alongside the FCA’s Dispute Resolution: Complaints sourcebook (DISP). DISP 3.6.4R (1)(b) states that the Ombudsman must take into account any relevant regulator’s rules, guidance and standards when reaching a decision.

FOS upheld Mrs King’s complaint on two grounds. The first was that Full Circle had personally recommended a portfolio that was unsuitable for Mrs King in her circumstances. In addition, the fact that Full Circle had obtained a Skilled Persons Report (SPR) (accepted by the FSA) stating Mrs King’s portfolio was a “medium risk profile” did not detract from the finding that the portfolio was unsuitable for Mrs King.

Full Circle argued that FOS’ decision should be quashed on numerous grounds. Notably, Full Circle argued that the SPR constituted a set of standards for the purposes of DISP 3.6.4R (1)(b). As the Ombudsman had departed from the SPR (and therefore the standards) without explaining why, Full Circle argued the decision should be quashed per R (Heather Moor and Edgecomb) v. Financial Ombudsman Service [2008] EWCA Civ 642. Furthermore, Full Circle argued that FOS had considered issues, such as whether Full Circle recommended the portfolio, which were not envisaged in Mrs King’s complaint.

The court roundly dismissed all aspects of Full Circle’s application. Addressing Full Circle’s complaint regarding the SPR, Nicol J held that the report did not constitute a set of standards for the purpose of DISP 3.6.4R (1)(b) as it had not been created to investigate a complaint such as Mrs King’s. Mrs King’s complaint was not that the portfolio was not “medium risk”; it was that the portfolio was not suitable for her personally. FOS had upheld the complaint and the SPR did not provide a legal basis to challenge this.

In respect of the argument that FOS should have limited what it considered to Mrs King’s initial complaint, Nicol J held that the Ombudsman’s first task when adjudicating is to determine the scope of the complaint. The judge noted the comments of Irwin J in R (Keith Williams) v. Financial Ombudsman Service [2008] EWHC 2142 (Admin) that the Ombudsman’s jurisdiction is “inquisitorial not adversarial”. In addition, Nicol J held that the Ombudsman was not confined to the contents of the complaint form completed by Mrs King; it was the right of the Ombudsman to broaden the scope of his enquiries to the correspondence which Mrs King had provided. This exercise led the Ombudsman to conclude that Mrs King’s personal circumstances (being over 60, not wanting sizeable cash holdings and seeking to obtain long-term income with the investments) meant that assigning any “medium risk” portfolio would not be sufficient.

The Full Circle case can be seen as useful guidance in the way the court deals with arguments regarding FOS determinations. Nicol J’s judgment robustly defends the right of FOS to deal with a complaint in a manner it deems fair and reasonable. This right extends to broadening the scope of the initial complaint and considering additional evidence.

Any party applying for judicial review will also need to be cautious before attempting to interpret a “regulator’s standard” too broadly for the purpose of DISP 3.6.4R. As can be seen from Full Circle, the fact the FCA approved a report into the status of Full Circle’s portfolio did not mean it was a relevant document in the context of Mrs King’s complaint. If the court holds that a document is not relevant for the purposes of DISP, the Ombudsman will not be under an obligation to provide reasons for departing from the reasoning in that document.

It is notable that Nicol J’s judgment appears to rest on the finding of the Ombudsman that Full Circle recommended the portfolio to Mrs King. Full Circle did not contend this finding was an error in law; this meant the application proceeded on the basis that the Ombudsman was entitled to make that finding. It is arguable that this amounted to a large concession which left much of Full Circle’s application without merit.