Out-Law News 2 min. read
13 Apr 2010, 9:57 am
The Financial Services Act received Royal Assent on 8th April after being passed during the 'wash up', an accelerated process used to pass legislation in the last days before Parliament breaks up for a general election.
In order to get its Bill through, however, the Government was forced to drop controversial proposals that would have enabled consumers to bring class actions against banks, insurers and other financial services firms.
Conservative peers opposed the measures on the basis they were being introduced without proper consultation. But Baroness Noakes, Shadow Minister for the Treasury, promised that, whatever the outcome of the election, this was "not the end of the story".
"We fully support further work on collective actions for consumers, but we believe that that should be on a holistic basis across the whole range of consumer redress and not simply on financial services," she said.
Peter Vicary-Smith chief executive of consumer watchdog Which? urged Parliament to reintroduce proposals for class actions at the earliest opportunity.
“Collective redress is a potentially powerful weapon for consumers against the systemic mis-selling of financial products and would prove a real deterrent for firms engaging in unscrupulous sales practices,” he said. “By dropping these measures from the Financial Services Bill, a golden opportunity to empower consumers is being missed."
Under section 14 of the Act, the FSA will be able to draw up rules for a consumer redress scheme where it concludes there may have been a "widespread or regular failure" by relevant financial services firms to comply with the regulator's requirements and it appears that consumers have suffered (or may suffer) loss or damage as a result.
The FSA's rules would specify what acts or omissions constituted a failure to comply, the factors to be taken into account, what kind of redress would be suitable and any time limits or cut-off date.
Section 14 amends section 404 of the Financial Services and Markets Act, under which any redress scheme had to be authorised by the Treasury on application from the FSA. Under the new law, the FSA can act on its own authority.
In response to concerns about how the regulator might use these powers, however, the Government accepted an amendment introducing a right to challenge any rules made by the FSA to the Upper Tribunal, the successor to the Financial Services and Markets Tribunal.
And, in a further climb down, the Government acknowledged section 14 should not come into force immediately as planned, but would have to await a further order by the Treasury.
This delay will be frustrating for the FSA, which recently postponed consideration of a rule that would require firms to reopen rejected complaints about payment protection insurance (PPI) until its powers to order consumer redress schemes had been clarified by the new law.