Financial Services Authority v Matthews & Anor

For the purposes of Financial Services and Markets Act 2000, s 382, failure by a regulated firm to comply with final and binding PIA Ombudsman awards may constitute contravention of a relevant requirement. The merits or procedural fairness of an award cannot ordinarily be reopened collaterally in compensation proceedings where the available challenge was not pursued. The court may nevertheless consider fairness when exercising its discretion over the amount of compensation. Where reinstatement is disproportionate to the defendants’ means and a top-up would provide meaningful benefits to the clients, compensation may properly be assessed on a top-up basis.

The FSA sought relief under s 382 of the Financial Services and Markets Act 2000 against former partners of a financial intermediary. The defendants had failed to comply with two PIA Ombudsman awards concerning pension miss-selling involving transfers from the Mineworkers Pensions Scheme. They admitted non-compliance and accepted that the clients were qualifying persons, but disputed the awards’ validity, alleged incompatibility with article 6 of the Convention, and contested whether compensation should fund reinstatement or merely top up the replacement pensions.

The central issues were whether non-compliance was a contravention of a relevant requirement and, if so, what compensation was just.

1. The court held that the defendants were bound by the PIA Rules, including the obligation to comply promptly with an Ombudsman award unless they pursued a good-faith appeal or other court relief. The Ombudsman’s terms provided no appeal. Judicial review was the only available challenge, and no such challenge had been brought within the relevant time.

2. The awards therefore could not be attacked collaterally in the s 382 proceedings. The defendants’ failure to comply with them was a contravention of a relevant requirement for the purposes of s 382. The clients were qualifying persons and had suffered loss.

3. The defendants’ article 6 arguments did not alter the result. The awards had been accepted under a contractual regulatory mechanism, both pre-dated commencement of the Human Rights Act 1998, and the defendants had received legal advice. Applying Wilson v First County Trust Ltd [2003] 3 WLR 568, the Human Rights Act had no retrospective effect. The court nevertheless allowed the defendants an opportunity to raise procedural fairness in the exercise of its discretion; they chose not to adduce evidence capable of challenging the awards.

4. Although regulatory guidance treated reinstatement as the usual basis of redress, s 382 required an amount appearing just having regard to the extent of the loss or adverse effect. Reinstatement would effectively exhaust the defendants’ assets and was disproportionately costly. A top-up would provide benefits to the clients while avoiding that disproportionate consequence. Compensation was therefore ordered on a top-up basis: £52,472.23 for Mr Merriman and £29,876.97 for Mr Bayliss.

5. The defendants were ordered to pay the compensation to the FSA for the clients’ benefit and £11,500 costs. The compensation was payable by 24 January 2005 and the costs by 5 January 2005.