FCA objects to Complaints Commissioner decision on inaccurate register entry

The Complaints Commissioner has told FCA to pay compensation to a consumer who lost money after investing with what they believed to the be UK operation of an Austrian firm but was in fact fraudsters who had cloned the firm.  The investor had called FCA and been advised the firm in question was an Austrian firm and been told to contact the Austrian regulator before investing.  FCA had information that the firm may be the subject of attempted cloning but at the time would not have had a chance to put a warning on the Register before the investor’s call and decision to invest.  It also transpired that the legitimate firm had stopped trading but the Austrian regulator had not told FCA, and that the investor had invested without waiting for the response from the Austrian regulator.  The mistake the associate in the call centre had made was to fail to tell the investor that the firm held a passport only for insurance-related activities, whereas the investor was enquiring about savings.  However, FCA said the recommendation to contact the Austrian regulator was still the correct one.  Also, the then FSA had originally registered the firm’s passport in an incorrect name and then, the following year, instead of revoking the passport when asked to by the Austrian regulator, had reversed the name and created two passporting firms.  FCA had subsequently (and only after the cloning concerns emerged) removed first one, and then the other, entry.

The Complaints Commissioner noted that the advice FCA gave the customer was right, and the fact the adviser had not mentioned what business the passport covered did not seem material to the substance of the complaint. But FCA’s actions in failing to remove the firm from the Register when it should have done (even though there was no evidence the investor checked or relied on the Register) enabled the firm to be cloned.  As a result, and although FCA could not be held responsible for criminal actions by the fraudsters, the Complaints Commissioner said FCA should pay the complainant 50% of her loss.

The Commissioner also said this raises a more general question of whether FCA should consider making substantial compensatory payments for errors where consumers suffer because of Register errors. The law would not currently oblige this, and FCA said it could not accept the recommendation because to do so would be to warrant that all entries on the Register were accurate.

FCA, in its response, disagreed with the Commissioner.  It said that (unlike in a previous case), the complainant had not relied on the register, and had not taken FCA’s advice. It therefore does not agree it should make any payment, although it will be checking its policies and procedures around reviewing Register entries of passported firms.