Eligible Complainants: Professional Clients

As we know, changes to the Handbook were made in 2015 which meant that certain professional clients would be regarded as ‘consumers’ and hence able to have their complaints dealt with under the Financial Ombudsman Service (“FOS”) as ‘eligible complainants’.

A consumer is “any natural person acting for purposes outside his trade, business or profession”.

Sometimes a question we are asked is whether an investment professional, say a portfolio manager, that makes an investment in a personal capacity would satisfy the definition of a consumer and hence an eligible complainant.

FOS has clarified that in this scenario an investment professional would be regarded as an eligible complainant on the basis that there is a difference between someone acting in their professional business capacity and that same person acting solely as a consumer using/buying a financial service of which they also happen to have a working professional knowledge.

Below is a copy of an ‘Alert’ that was sent out to Complyport clients in June of last year which summarises the changes and highlights areas that firms should have been considering. If your firm is an Alternative Investment Fund Manager, please note that the term ‘eligible complainant’ can also apply to an investor in an Alternative Investment Fund (unless it is a closed-ended corporate AIF).

Alert – June 2015

Changes are being made to the Disputes Resolution Sourcebook: Complaints Sourcebook (“DISP”) of the FCA Handbook. The changes mean that certain professional clients, and not just retail clients, will be able to have their complaints referred to the Financial Ombudsman Service (“FOS”) if not otherwise resolved.

The new regime applies from 9 July 2015 (in respect of complaints received from that date).
Firms who have previously fallen outside the remit of the FOS may now have to apply the ‘complaints rules’ to some but not all professional clients.

What is a Complaint?
Under the FCA Rules, a “complaint”, subject to certain provisos, is defined as “any oral or written expression of dissatisfaction, whether justified or not, from, or on behalf of, a person about the provision of, or failure to provide, a financial service, or a redress determination, which:

  1. alleges that the complainant has suffered (or may suffer) financial loss, material distress or material inconvenience; and
  2. relates to an activity of that respondent, or of any other respondent with whom that respondent has some connection in marketing or providing financial services or products, which comes under the jurisdiction of the Financial Ombudsman Service”.

Who is an Eligible Complainant?
Presently, one of the requirements in DISP 2 (which sets out the scope of FOS jurisdiction) is that the complainant must be an ‘eligible complainant’.

An eligible complainant is:

  • A consumer (a “natural person acting for purposes outside his normal trade, business or profession” (i.e. an individual)).
  • Micro enterprises (fewer than 10 employees and turnover or annual balance sheet of €2m or less).
  • Charities with annual income less than £1m
  • Trustee of a trust with net asset value of less than £1m.

Accordingly, an individual, whether classified as ‘retail’ or an ‘elective professional client’ would be a ‘consumer’ and on the face of it, be covered by the FOS. The rule (DISP 2.7.9(2)) applying to exclude professional clients from the definition of eligible complainant is overridden by a new rule (DISP 2.7.9A), so that an individual, if acting outside his trade, business or profession will qualify as a ‘consumer’ and will be covered by FOS even if classified as an ‘elective professional client’.

The term ‘eligible complainant’ can also apply to an investor in an Alternative Investment Fund (that is not a closed-ended corporate AIF).

There will be several implications for firms caught by the rule change, including (amongst others):

  • Required updates to Compliance Manuals and Monitoring Programmes;
  • Required changes to Senior Management Arrangements, Systems and Controls documents;
  • Updates to firms’ terms and conditions explaining the rights of clients to use the FOS;
  • Potential changes to firms’ websites, general literature and financial promotion disclaimers;
  • Required training for firms’ personnel ensuring identification of relevant complaints;
  • Procedure and policy documents to deal with complaints including timeframes to follow;
  • Complaints reporting to the FCA;
  • Payment by firms of a FOS levy fee together with notification to the FCA that the firm is no longer exempt from FOS fees; and
  • Potential payments of case fees to the FOS dependent upon the number of complaints received by a firm.

Complyport Services

  • Training courses and briefings for responsible staff are available
  • Clients using ComplyTracker and ComplyTrainer will receive updates

Complyport can assist you with:

  • Building your firm’s complaints procedures;
  • Updating training requirements
  • Updating relevant literature including websites and terms and conditions of business; and
  • Notifications and reports to the FCA as required.