This is a high profile and fluid area with a number of cases reaching the Court of Appeal in 2014. “Basis clauses” which define the nature of the relationship are generally being upheld as valid (creating a contractual estoppel) and a useful tool for defendants which appear destined for the Supreme Court sooner or later.
Key issues revolve around the existence, or not, of an advisory relationship triggering compliance with suitability criteria and/or a duty of care to consider and advise upon all of the options and alternatives. An information only or “non-reliance” relationship focusses on compliance with appropriateness criteria and the accuracy of oral, written and non-disclosures. Important statutory duties under the FCA Handbook are to provide clear, fair and not misleading information and a summary of key risks.
Currently, financial institutions are successfully limiting their exposure to mis-selling claims by classifying the relationship as being non-advisory at the outset via their terms of business. Further, by excluding or limiting contractual and tortious duties over and above their regulatory obligations and any liabilities for consequential or indirect losses. It is proving hard for claimants to establish that notwithstanding the terms of business, advice and reasonably foreseeable loss which the institution has taken responsibility for is recoverable.
This is a developing area where savvy claimants will try to use an institution’s own processes against it to get to the bottom of matters. For example, by using the disclosure process to obtain transcripts, high level reports, employment records, disciplinary documents and locate whistleblowers.
In response to the threat of mis-selling claims or a regulatory review of historic sales, firms are gearing up their in-house compliance and governance teams. Their objective is to disclose and disclaim the risks to capital that are embedded in financial products without straying into giving advice.
Jonathan Kitchin is a member of the Commercial & Regulatory Disputes team and can be contacted on firstname.lastname@example.org or 01392 687635.