Under FSMA 2000, where the Financial Ombudsman Service upholds a complaint and makes an award, the Ombudsman may: (a) award against the relevant firm of such amount as the Ombudsman considers fair compensation for loss or damage suffered by the complainant (‘a money award’) and/or (b) direct that the respondent takes such steps in relation to the complainant as the Ombudsman considers just and appropriate (whether or not a court could order those steps to be taken).
Where a money award is made, the 2000 Act provides that it “may not exceed the monetary limit; but the Ombudsman may, if he considers that fair compensation requires payment of a larger amount, recommend that the respondent pay the claimant the balance”. The monetary limit specified is £100,000.
Where a respondent is directed to do something by the Ombudsman, the mechanism for enforcement is by means of an injunction.
A recent High Court case has been concerned with two cases involving enforcement of awards and particularly the question: if the Ombudsman makes a direction, which if implemented, would require a firm to pay a complainant more than £100,000, is that direction outside the ambit of the Ombudsman’s powers and therefore subject to judicial review?
On 25 May, the High Court handed down a judgment that concluded that the Financial Ombudsman Service did not have the jurisdiction to award a money payment or direct a firm to make a payment that exceeded the statutory cap of £100,000. The Judge remarked that if the Ombudsman could do otherwise “…what is the point of the cap?” The Judge also concluded that if the cost of complying with a direction is unknown at the time it is made, it is subject to an implicit limitation that it will not be enforceable beyond the statutory cap, once reached. In other words, the Ombudsman does not have the power to make a direction that would require a firm to make a payment that exceeds the statutory cap.
The Honourable Mr Justice Lewison said: “I recognise that my answers to the questions I have been asked to consider upset current thinking (at least so far as the Financial Services Authority and the Ombudsman Service are concerned). I have also found the questions difficult to resolve; and I believe that there are obscurities and lacunae in the statutory scheme. I would therefore be receptive to any application for permission to appeal.”
Philip Ryley, head of financial services & markets at Michelmores, said: “We shall have to wait and see if this judgment goes to appeal, but at the moment it will be of great relief to an industry that is being besieged by complaints, many being of significant value and beyond the £100,000 cap. It is good news for the industry.”
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