It is usually very difficult to succeed in establishing that a Bank owes a general advisory duty to a customer. This is particularly true in the case of company directors who are accustomed to dealing with complex banking transactions and who have access to their own independent advice. This was covered in Cat’s previous post regarding the case of Titan Steel Wheels v RBS and in Liina’s recent coverage of the Grant Estates case.
It is worth bearing in mind that the law relating to an individual’s personal borrowing is quite different. The Financial Service Authority’s Conduct of Business Rules (“COB Rules”) sets the parameters on how a bank should act with individual customers. Section 150 of The Financial Services and Markets Act 2000 (FSMA) allows an individual who has suffered a loss as a result of a breach of these Rules by a bank to sue the bank who provided the advice. It is potentially quite a powerful remedy because it is much more straightforward than overcoming the various legal hurdles of proving a bank acted negligently.
The COB Rules can be found on the FSA’s Handbook website. The Handbooks are divided by lending type. For example, the Mortgage Handbook sets out the rules that lenders must abide by when offering Mortgage finance. These rules state that a lender must conclude, before offering the borrowing, that the customer can afford to enter in to the mortgage contract and that the mortgage contract is appropriate to the needs and circumstances of the customer. A lender who fails to follow these Rules risks liability under section 150 of FSMA.
Although a good starting point for any individual who believes that they have received bad advice from a lender, it is worth noting that the interactions between these rules can become quite complex. Some of the Handbooks even prevent the statutory right to relief under section 150 of FSMA so it is worth examining their terms carefully or seeking advice from your solicitor.
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