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FSCS' Decision to Refuse Compensation Leaves 'Toxic' Bond Investors Dejected

Posted on Mar 08, 2013 by  | 0 Comments


By Neil Morrison and Cat MacLean



Last week the Financial Services Compensation Scheme (FSCS) announced that it will not be paying compensation to investors who were sold ‘toxic’ ARM Investment products by an independent financial advisor (IFA), Rockingham Investments Ltd.


The FSCS is the UK’s compensation fund of last resort for customers of authorised financial services firms. If a firm is unable to pay claims against it because it has stopped trading then the FSCS may pay compensation to its customers (max of £50,000 per customer). 


The FSCS’ position is that the refusal to grant a licence to ARM by Luxembourg’s financial regulator, the CCSF, was not reasonably foreseeable and any losses flowing from the refusal are too remote in law to be recoverable.

The decision will be a bitter pill to swallow for investors as the FSCS conceded that Rockingham may well have given bad advice on ARM investments but considered that Rockingham would not be found liable for losses due to the cause of the losses flowing from the CCSF decision rather than just bad advice by Rockingham. 

The FSCS appears to have taken the view that as a refusal by CCSF to grant ARM a licence was not reasonably foreseeable then no duty to warn of this risk arises on the part of the IFA. While the FSCA decision is not a binding precedent from a Court, it will no doubt be welcomed by IFAs who are or may soon be pursued by disgruntled investors. 


The FSCS does not appear to have an appeal procedure for rejected claims from consideration of the necessary FSA Handbook Rules so that would appear to leave judicial review proceedings in England (where the FSCS ‘seat’ is located) as the last resort for determined investors unhappy with the FSCS decision.


Where does the FSCS decision leave investors? If judicial review proceedings are not pursued, investors should turn their attention to UK distributors of the ARM investment products and consider submitting complaints against them to the Financial Ombudsman Service or alternatively litigate through the Courts as the causation hurdle (that stopped Rockingham FSCS claims) may be able to be overcome for sales of ARM products, particularly those sold after July 2009. 


Please feel free to contact us should you require information or assistance. Alternatively, leave a comment below.

DISCLAIMER: While every effort has been made to ensure the accuracy of this blog post, it is not intended to provide legal advice as individual situations will differ. No recipients of content in this blog post should act or refrain from acting on the basis of the blog post without seeking the appropriate legal advice on the particular facts and circumstances at issue from a qualified solicitor in their jurisdiction. The blog post is for general information only and is not legal advice. The law changes frequently and varies from jurisdiction and jurisdiction. No solicitor-client relationship is formed nor should any such relationship be implied. If you require legal advice, please consult with a solicitor qualified to practise in your jurisdiction.  Should you be interested in seeking our assistance with a legal matter, please contact the Dispute Resolution team on 0131 226 8200.

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