On 7 December 2017, the Office of the Complaints Commissioner (“Commissioner”) published a final decision relating to a complaint made against the Financial Conduct Authority (“FCA”) on 21 November.

Whilst the Commissioner did not uphold the complaints, this case raises the immediate issue ofhow the FCA presents information to the public, and the longer term issue of if, and if so how, passporting may operate after Brexit.


The complainant invested in a financial product having received investment advice from a financial advice firm. The final report stated that the product subsequently went into liquidation and the investment was lost. The complainant later became aware that the financial advice firm was authorised in Cyprus. The firm had been “passported” under European Union (“EU”) rules to operate in the UK. Passporting allows a firm registered in the EU or the European Economic Area (“EEA”) to do business in any other EEA state without further authorisation in each country. Importantly, the firm was only authorised to undertake insurance mediation in the UK, not to provide investment advice.

The complaint

The key elements of the complaint were that the FCA:

1. had failed to undertake due diligence on the firm to ascertain which products the firm was authorised to sell;

2. had failed to ensure that the authorisation came with adequate compensation arrangements that would be expected by UK consumers via cover from the Financial Ombudsman Service and Financial Services Compensation Scheme; 

3. failed in its duty of care to protect UK customers by not publishing on the FCA website the restrictions and limitations placed on the firm; and

4. did not show the firm’s removal from the register of firms regulated by the FCA on its website until 6 months later than receivership.

The Commissioner’s decision

The Commissioner did not uphold the complaints. It found that the FCA had made numerous attempts to deal with the problem, but had to operate within the framework of the EU passporting system. The FCA is required to recognise firms within the EU or the EEA which meet certain criteria, even where the consumer protections are inferior to firms principally regulated by the FCA. As a result, the firm could not be removed from the register on the FCA’s website until the Cypriot authorities had cancelled the firm’s permissions for the UK. Under passporting rules, the level of compensation was dictated by the regulator of the country in which the firm was based – as the firm was based in Cyprus, this was the Cypriot Insurance Companies Control Service, rather than a UK-based body.

The Commissioner stated, “while I have great sympathy with the situation in which you find yourself, your initial decision to invest was made only three to four months after the FCA’s significant concerns began to emerge, during which time the FCA was attempting to resolve the issue.” The steps taken by the FCA included asking the firm voluntarily to stop providing services beyond the insurance mediation it was authorised to carry out and attempting to persuade the firm that it should commission a skilled person’s report under s166 of the Financial Services and Markets Act (under which an independent expert looks at alleged shortcomings so that remedial action can be taken).

The Commissioner did make a number of comments on how the complaint was handled. The lack of openness from the FCA was criticised. The FCA’s decision letter gave the impression that FCA was a “largely powerless by-stander”. The record showed otherwise, and it would have been possible for the FCA to explain more of the facts to the complainant, as the Commissioner had done in his final report (with the permission of the FCA).

The form of the register was also criticised. The Commissioner considered the register to be difficult to navigate, and lacking in readily comprehensible information for consumers.

The Commissioner recommended that the FCA should:

1. apologise to the complainant for the impression given in its decision letter that it was powerless to act when it was, in fact, in contact with the firm and taking steps to resolve the issue;

2. consider whether there are lessons to be learned in relation to the interaction between its own and foreign regulators’ powers over firms operating in the UK; and

3. consider what further steps could be taken to make clear to readers of the registers maintained on its website what are the limitations of UK regulatory protections in cases where a firm’s principal regulator is in another jurisdiction.

The FCA’s response

The FCA confirmed that it would apologise. The FCA also said that its relationships with other EU regulators were going to be assessed in light of Brexit. The FCA said that they would consider further how to make clear to readers what limitations affect UK regulatory protections in cases where a firm’s principal regulator is in another jurisdiction.

Immediate issues

The Commissioner’s final report and the FCA’s response may mean that in future registers on the FCA’s website are clearer – making it easier to establish the restrictions and limitations of firms. This would have particular importance when a firm is passported to operate in the UK under EU rules, as the authority to provide services in the UK derives from the regulator in the country in which it is based. As a consequence, consumers would be better able to assess the level of UK regulatory protections available and make more informed decisions.

This also may mean that in future the FCA will be more open as to the action being taken “behind the scenes” when dealing with complaints. The Commissioner noted that the underlying criticism of the FCA which the complainant was advancing was that of insufficient action. In this case, whilst the Commissioner accepted that there were confidentiality constraints on the FCA, it considered that it would have been possible for the FCA to explain more of the facts to the complainant, as the Commissioner had done.

Longer term – after Brexit?

The FCA noted that its relationships with other EU regulators were going to be assessed in light of Britain’s exit from the EU. Depending on how rights regarding passporting are negotiated, the requirements that firms from EU jurisdictions must satisfy to operate in the UK may change. As it stands, the passporting system means the FCA is required to recognise EU or EEA firms which meet certain criteria. Requirements post-Brexit may vary across firms based in different jurisdictions, potentially allowing the FCA greater powers to prevent firms from operating in the UK should they not be sufficiently qualified.