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Regulator could lose immunity from civil damages lawsuits

03/11/2022

Currently, the Financial Services and Markets Act 2000 gives the FCA and Prudential Regulation Authority immunity from civil liability damages arising through negligence.

The FCA will be liable to civil damages actions if an amendment tabled by MPs to abolish the regulator’s longstanding statutory immunity is passed, Citywire New Model Adviser [NMA] has learned.

The door could open to lawsuits brought against the FCA and could mean claims management firms bring forward a flood of claims, one source said.

The Financial Services and Markets Act 2000 gives the FCA and Prudential Regulation Authority (PRA) statutory immunity from civil liability legal cases, which means they do not have to pay damages arising from negligence.

The regulators’ immunity

  • Does not extend, however, to claims for bad faith or for contraventions of the Human Rights Act 1998,
  • Nor does it prevent claims for judicial review of their decisions or challenges in the Financial Services Tribunal in regard to regulatory actions.

NMA has learned that a group of Scottish National Party MPs tabled an amendment clause to the financial services and markets bill that could strip the FCA and PRA of their immunity from civil cases.

Under the amendment, the watchdogs will be subject to civil damages actions if a consumer has suffered financial loss and the regulators negligently failed to take sufficient action to prevent the prohibited activity from occurring.

The amendment, which still needs to pass the committee stage, was first proposed by campaign action group Transparency Task Force.

After the committee stage, the bill will have a third reading in parliament before receiving royal assent. NMA understands the Treasury is expecting the entire bill to pass by next April.

A source told NMA that if the FCA loses its immunity, claims management companies could bring many negligence cases against it over past incidences.

The amendment does not outline how the FCA will pay for the legal costs or civil cases that go against it, but options include a levy on firms.

In recent years, the FCA has been accused of failing to stop a series of scandals, including London Capital & Finance, the British Steel Pension Scheme, and Blackmore Bond, all of which caused investors to lose millions of pounds.

Simon Harrington, head of public affairs at the Personal Investment Management & Financial Advice Association, said:

  • ‘While we absolutely understand the provenance of the proposed amendment and recognise the very real harm that has been perpetuated as a result of unregulated firms in particular, it would be extremely concerning to us if these costs were ultimately borne by existing industry participants.
  • ‘The cost of regulation and additional compensation through funding the Financial Services Compensation Scheme is already a significant burden for many firms in this industry, and this would add an additional layer to well-run firms.’

The FCA declined to comment.

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