Taking Financial Ombudsman Service Decisions Seriously: Foreman Financial Services

The recent FCA Final Notice against Foreman Financial Services Ltd (FFSL) is a timely demonstration of why firms should take decisions of the Financial Ombudsman Service (FOS) seriously, even when they disagree with them.

The complainant (Mr C) received advice from FFSL to transfer his existing pension to a Self-Invested Personal Pension (SIPP), through which he could invest in an overseas property (Harlequin). Mr C's entire pension pot was being used to fund the deposit on Harlequin, with the balance of funds being raised by way of a loan. Harlequin was never completed and Mr C effectively lost his pension pot.

Mr C was in fact the pre-existing client of another financial adviser who had attended the Harlequin presentation with Mr C and who was (presumably) in favour of Mr C investing in Harlequin. However, that adviser was not authorised to give pensions advice and referred Mr C to FFSL for the sole purpose of arranging the SIPP and facilitating the investment in Harlequin.

In a decision dated 9 September 2016, the Ombudsman found that Mr C was already heavily exposed to property and the transfer of his pension pot to the same sector represented an unsuitable and highly risky investment, even for someone with a "dynamic" attitude to risk. Harlequin was additionally a very risky proposition. The Ombudsman found that, despite the prominent role of the other adviser in the causal chain, FFSL was under a duty to give Mr C suitable advice as to the wisdom of the SIPP and the Harlequin investment. The Ombudsman found that, had Mr C been given suitable advice, he would not have transferred his pension to a SIPP. The Ombudsman then set about determining what was, in his view, a "fair" calculation of the damages to be paid to Mr C. The Ombudsman's decision consisted of a quantification methodology for FFSL to follow rather than a set figure.

Mr C accepted the Ombudsman's decision, which accordingly became binding on FFSL. FFSL did not elect to challenge the decision at this stage, but it failed to pay out on the Ombudsman's decision. Whilst the details are not provided, it appears that both the FOS and the FCA requested FFSL to make payment on a number of occasions.

The FCA determined that FFSL had breached DISP3.7.12R(1) which requires an authorised firm that is the subject of an adverse FOS determination to pay out on the award. The FCA also determined that FFSL had acted in breach of Principles 6 and 11 of the FCA's Principles for...