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Increased challenges to Financial Ombudsman Service decisions

In two recent judgments, the court has highlighted the uneasy co-existence between the Financial Ombudsman Service (FOS) and the court.

The cases demonstrate the possibility of a challenge to FOS decisions that are based on what is 'fair and reasonable', rather than on the strict legal position and where their reasons are insufficiently explained by the FOS.

R (Aviva Life & Pensions (UK) Limited) v Financial Ombudsman Service [2017] EWHC 352 (Admin)

  • Aviva brought judicial review proceedings against an ombudsman's decision that it should reinstate a single life policy after it had voided it because of non-disclosure of mental health concerns.
  • The key issue for the High Court whether the ombudsman had explained the decision with adequate reasons.  Aviva argued that the ombudsman had not followed relevant law, guidance and practice and had not adequately explained the reasons for doing so.
  • The court allowed the application for judicial review and quashed the ombudsman's decision. The judge decided that where the ombudsman decides the outcome of a case on the basis of what is 'fair and reasonable', rather than on the strict legal position, the ombudsman must explain why and give reasons. 
  • Another issue was that the sum assured on the life policy was £500,000 (so above the £150,000 monetary limit of the ombudsman's powers). The court considered that regardless of whether the current claim was valid or not, Aviva would be liable to paying £500,000 at some point within the term. The ombudsman's decision was not merely a direction but a money award. This reflects a previously decided point that the ombudsman cannot avoid the statutory limit by making a direction if, in substance, the direction would result in a money award.

A copy of the full decision can be found here.

R (Full Circle Asset Management Limited) v Financial Ombudsman Service [2017] EWHC 323

  • The ombudsman had upheld a complaint made by a client of Full Circle Asset Management Limited (the firm) who argued that the firm had provided her with a portfolio of investments that were unsuitable for her.
  • The client had asked for a medium risk portfolio and a skilled person's report had decided that the portfolio was properly described as medium risk. The FCA had accepted the findings of the skill person report.
  • The Court decided that the ombudsman had made a finding of fact that the firm had made a personal recommendation to the client. It rejected, however, the firm's argument that the ombudsman should have followed the approach taken by the FCA.
  • It therefore followed that the fact that a skilled person had determined the portfolio was medium risk did not dispose of the complaint. The ombudsman concluded that the portfolio was not suitable for her. In so doing, the ombudsman was not departing from the standard the FCA had approved without explanation.

A copy of the full decision can be found at here.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at March 2017. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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