The law recognises that time limits should apply to a claimant’s right to bring a claim. It has passed legislation to give effect to that recognition (notably, the Limitation Act 1980 and Latent Damage Act 1986).
The Financial Ombudsman Service (FOS) time limits set out in DISP 2.8.2(2)R – the three- and six-year rule – have been criticised by some for their perceived generosity to a claimant.
In essence, the six-year limit from the event complained of can be extended if the complaint is brought within three years from when the complainant became aware, or ought reasonably to have become aware, of the cause of complaint.
There is no long stop date to when the three-year aspect can apply. A further opportunity to a claimant, albeit one very much of a last-ditch effort nature, is available if the Ombudsman believes that the failure to comply with the time limits arose due to exceptional circumstances. DISP 2.8.5R, 2.8.6G, 2.8.7R. 2.8.8G, 2.8.9R and 2.8.10G have separate limitation provisions relating to specific products.
By way of contrast, the Personal Investment Authority (PIA) Ombudsman rules, subject to one exception, had provided that the Ombudsman did not have jurisdiction to consider a complaint where the act or omission giving rise to the complaint would have been “time-barred by any applicable rule of law or enactment”.
The exception to this replication of the legal position was if the complaint fell within the ambit of the Securities and Investment Board’s (SIB) 1994 statement of policy on ‘pension transfers and opt-outs’.
Broadly, the SIB statement had precluded firms from refusing to review pension transfers and opt-outs within the scope of the review, starting 29 April 1988, on the basis that they were statute barred.
The absence of a longstop to the three-year part of the three- and six-year rule is out of step with parliamentary intentions
The FOS and Financial Conduct Authority November 2024 call for input (CFI) on modernising the redress system (question 14) refers to the lack of a long stop date in the current time limits.
It asks the questions (i) whether the current time limits for referring complaints should be reviewed and, if so, (ii) what alternative approaches should be considered which would provide an appropriate level of protection for consumers?
The second question appears to make the interesting assumption that dilution of current time limits can be consistent with consumer protection.
Criticisms of the three- and six-year rule expressed, without evaluation, include:
- The absence of a longstop to the three-year part of the three- and six-year rule is out of step with parliamentary intentions. FOS should not be a law unto itself.
- While most of the criticism is levied against the three-year part, even the six-year rule is out of step with other ombudsman schemes which have an initial time limit of 12 months (Legal Ombudsman Service, Local Government and Social Care Ombudsman) and three years for the Pensions Ombudsman.
- The application of the three-year extension can often be highly fact sensitive. It is more appropriate to have those factual issues decided in the adversarial process adopted by a court rather than the FOS inquisitorial process, especially with the current award limits of £430,000.
- It is unfair that elements of ignorance have the potential to assist some claimants to the detriment of respondent firms.
- The open-ended time limits have an effect on PI cover, both as to availability of cover in relation to certain risks as well as premium costs.
- The three- and six-year rule is one of the causes of FOS’s ongoing backlog of cases.
- The lack of balance between claimant and respondent in respect of some claims based upon highly historical matters can produce outcomes which are more than difficult to reconcile with the “fair and reasonable” statutory basis for FOS’s decision making (section 228(2) FSMA).
This article does not seek to deal with any analysis of alternative time limits.
Suffice to say, however, that the FCA and FOS could look at having the equivalent of section 32 Limitation Act 1980, based upon concealment. There would also need to be an exception for certain mass redress events.
The three- and six-year rule is unlikely to come out of the CFI process unscathed. The question must be as to the extent of its amendment.
Stuart Brothers is a consultant at Punter Southall
Prior to removing the longstop, it was understood that the FSA had sought and obtained legal advice as to the legality or otherwise of such a step. A FOI request was submitted for it to release a copy of this advice, but this was refused on the grounds that it fell outside the relevant act. It seems reasonable to assume that had the advice been that removing the longstop unilaterally was legal, the FSA would have been quite prepared to release a copy of it. Its refusal to do so strongly suggests it was advised that removing the longstop was NOT legal, but the FSA went ahead and did it anyway.
The basis of the perceived lack of a longstop is that it was not mentioned by the FSA when they drafted the Ombudsman rules.
When Parliament debated the FOS rules in 1999 Patricia Hewitt guaranteed that there would be checks and balances and at no time was the removal of (or even mention of the longstop) debated or voted on.
David Kenmir, managing director at FSA stated that the FSA could not override statute yet by this unilateral removal it has done exactly that.
I have been assured by barrister and a former Ombudsman that if challenged in the Court of Human Rights the removal would be found illegal.
To support such a challenge one has to go through the labyrinth of a Judicial Review. To this end a court has to grant permission for such a move. The FOS has successfully fought off such moves previously and it is absolutely clear that rather than have the matter investigated they prefer to fight those who oppose their rules.
No other body of people in the UK have had the longstop removed as a defence. The late Paul Lord Myers lied to Parliaments Human Rights Committee when the matter of the longstop was brought before them – another effort to retain the current situation.
The 3 year rule from when complainants ought reasonably to have been aware is subject to farcical application by FOS case handlers in many instances. This is definitely ripe for change as it is an abused legislation and leads to biased decision making to enable a complainant to circumvent the usual time barring rules.