Currently if a financial services firm breaks FSA rules when providing advice, they are only liable for compensation for losses directly arising from that advice.
However, in its evidence to the Joint Committee on the Draft Financial Services Bill, the FSA has argued for a change to causation law which would allow its successor, the Financial Conduct Authority, to force firms to pay compensation for 100% of losses.
Such a change would make financial services firms liable for 100% of losses, not just those arising directly from faulty advice, Reynolds Porter Chamberlain (RPC) says.
Simon Laird of RPC said: “Effectively these changes to the law could encourage customers who were perfectly aware of the risks they were taking to look for a loophole through which to claim compensation.
“The message we hear from firms is that consumer responsibility is being thoroughly ignored in the current proposals.”
In its evidence to the Bill’s committee, the FSA said: “Our experience is that members of the public and Parliamentarians have been of the view that the breach of the FSA’s rules should in all cases entail the consumer receiving 100% redress.
“However, the FCA’s ability to ensure consumers receive redress is constrained by the general law, in particular by questions of causation.
“If the breach of the rules either did not cause the loss, or was merely a contributory factor, the FCA will not be able to require firms to pay full redress.”
