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FCA Found Partially Liable For Loss Caused By Errors in Financial Services Register

The Financial Regulators Complaints Commissioner has recommended that the Financial Conduct Authority makes an ex gratia payment of £6,500 to an individual complainant. The recommended payment represents 50% of the total loss suffered by the Complainant as a result of errors in the Financial Services Register.

The Complaints Commissioner acknowledged that the FCA should not be deemed to generally warrant the accuracy of the Register. However, this was “not an ordinary case”, as the Register inaccuracies stemmed from “two serious errors” made by the FCA. The Complaints Commissioner also recommended that the FCA should undertake “a review of its processes to reduce the risks”.

The Complaint

The Complainant contacted the FCA on 16 May 2018 to confirm whether a potential investment opportunity was legitimate. The call handler at the FCA told the Complainant that the firm in question was part of an Austrian firm and eligible to operate in the UK under EU passporting laws. The call handler told the Complainant that she should contact the Austrian regulator to confirm what permissions the firm had and what products it was authorised to offer. The Complainant contacted the Austrian regulator but did not await a response before investing in the firm the next day. The firm was a clone and she lost all of her £13,000 investment.

The Complainant initially complained to the FCA. The FCA rejected the complaint so the Complainant took her case to the Complaints Commissioner.

The Complaints Commissioner found that the then FCA had made a number of errors including:

  1. Registering a passport request for the firm notified by the Austrian regulator under the wrong name.

  2. When alerted that the firm’s passport should be revoked, the FCA instead made a second entry registering the firm under its correct name.

The FCA was found to have given the Complainant “good advice” to contact the Austrian regulator and conduct her own “further due diligence” before investing. The Complaints Commissioner found that had the Complainant waited for the Austrian regulator’s response, she would have discovered that the firm was no longer authorised. However the Complaints Commissioner also considered the fact that the Register was incorrect and “that the FCA Complaints Team did not uncover the extent of the regulator failings”. He found that these failings had contributed to the Complainant’s loss, and called for a 50% compensatory contribution from the FCA.

The FCA’s response

The FCA has responded that it is unable to accept the Complaints Commissioner’s recommendation to make a payment. The FCA’s stance is that it has no obligation, whether under statute or common law, to pay compensation for errors in the Register. The FCA’s view is that, were it to accept the Complaints Commissioner’s recommendation, “it would amount to the FCA warranting to the public that all entries on the Register are accurate, which as noted, is a position [the FCA is] unable to accept”.

The FCA has also pledged to undertake an extensive review in order to check how it can assure and ensure the accuracy of its data.

Need for reform?

The case is a reminder that there are improvements to be made before the Register can be wholly relied upon. In the wake of the collapse of London Capital & Finance, there have also been requests for the distinction between (i) regulated activities which firms have permission to undertake and (ii) the unregulated activities firms carry out to be clarified and documented on the Register.

Whilst the FCA itself advises people to only deal with authorised firms and to check the Register to ensure this is the case, this instance serves as a warning to proceed with caution when using the Register

© Copyright 2019 Squire Patton Boggs (US) LLP

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About this Author

Thomas Bowie UK Squire Patton Boggs FCA PRA Compliance Financial Services Practice Group
Associate

Thomas Bowie is an associate in the Financial Services Practice Group. He works on a diverse range of regulatory matters, and advises on compliance with the FCA/PRA rules and implementation of EU legislation in the UK (including MiFID II/R, EMIR, AIFMD, 4MLD, 5MLD, and PSD2). Tom acts for clients across EMEA, North America and Asia Pacific ranging from start-ups to international organisations, including banks, stockbrokers, investment managers, private equity firms, insurers and intermediaries.

Tom has a keen interest in fintech and innovators who enable access to traditional...

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