R (on the application of the British Bankers Association) v Financial Services Authority

The claimant (the British Bankers Association) sought judicial review of the Financial Services Authority's Policy Statement 10/12 and related Financial Ombudsman Service guidance about redress for missold Payment Protection Insurance (PPI). The claimant advanced three principal grounds:

• that s150(2) FSMA, by making the FSA's Principles non-actionable, prevented the FSA or the Ombudsman from treating breach of those Principles as giving rise to redress;
• that where the FSA had promulgated detailed, actionable rules (notably ICOB/ICOBS), those specific rules exhausted the relevant obligations and the broad Principles could not augment or contradict them;
• that widespread failings of the kind identified should only be dealt with under the statutory s404 remedy for industry-wide past-business reviews and not by the complaints-led, root-cause approach adopted in the Policy Statement.

The court rejected all three grounds. It held that s150(2) only prevents causes of action in court based solely on the Principles and does not prevent the FSA or the Ombudsman from treating the Principles as relevant obligations when determining what is "fair and reasonable" or when deciding redress; that the Principles are an overarching regulatory substratum which may legitimately inform or augment specific rules where those rules do not exhaust the Principles' scope; and that the FSA's strengthened DISP/root-cause measures did not unlawfully usurp or evade the s404 statutory scheme for consumer redress.

Background and parties: The case concerns regulatory responses to large numbers of complaints about missold Payment Protection Insurance (PPI). The claimant, the British Bankers Association, challenged FSA Policy Statement 10/12 (amendments to DISP plus an Open Letter listing common failings) and related guidance published by the Financial Ombudsman Service (FOS). Nemo Personal Finance Ltd supported the claim as an interested party. The FSA and FOS defended the measures.

Nature of the claim / relief sought: The claimant sought judicial review of the Policy Statement and the Ombudsman's Online Resource, arguing that they were unlawful for three reasons: (1) s150(2) FSMA made the Principles non-actionable so they could not give rise to redress; (2) the Principles could not be used to augment or contradict specific, actionable rules in ICOB/ICOBS; and (3) where widespread misselling was involved the statutory s404 scheme for reviewing past business should be the exclusive means, so the complaints-led/root-cause approach unlawfully circumvented s404.

Issues framed: (i) the legal effect of the FSA's exclusion of actionability of the Principles under s150(2); (ii) the relationship between high-level Principles and detailed, actionable rules (whether the specific rules exhaust the field or whether Principles may still apply); and (iii) whether the FSA's complaints-led and root-cause measures unlawfully circumvented or were excluded by s404.

Court’s reasoning and conclusions:

• On s150(2): the court read s150(2) as only removing a private cause of action based solely on the Principles; it does not remove the relevance or normative force of the Principles in other regulatory or dispute-resolution contexts. The Ombudsman, whose statutory test is what is "fair and reasonable", legitimately may take regulatory rules including the Principles into account when determining redress. The judge concluded that to read s150(2) as preventing the Principles from having any effect on redress would be inconsistent with the statutory scheme and the broad role of the Ombudsman.
• On the Principles v specific rules: the court treated the Principles as an overarching regulatory substratum which remains applicable even where more specific rules exist; specific rules are applications or amplifications of Principles but do not, absent clear language, exhaust or exclude the Principles. The FSA and FOS may legitimately use the Principles to fill gaps or to inform how specific rules should be applied (subject to reasoned decision-making by the Ombudsman), and the Policy Statement's identification of common failings and evidential provisions did not unlawfully contradict or impermissibly augment the specific rules.
• On s404: the court distinguished the statutory s404 consumer-redress/scheme regime from the FSA's complaints-led root-cause approach. Although s404 provides for a compulsory, pro-active industry-wide scheme where certain conditions are met, its existence does not preclude the regulator using other lawful tools (such as DISP root-cause rules and guidance) to address widespread problems. The amendments and guidance were, on their character and legal effect, an extension and emphasis of existing DISP root-cause obligations rather than an unlawful evasion of s404's statutory safeguards.

Procedural outcome: Permission to apply for judicial review was granted but all grounds of challenge were dismissed. The judgment emphasises that where the Ombudsman relies on the Principles to award redress despite compliance with specific rules, adequate reasons must be given.

The claim is dismissed. The court held that (1) s150(2) FSMA only prevents a private cause of action in court based solely on the FSA Principles and does not prevent the FSA or the Ombudsman from treating the Principles as relevant obligations for complaints-handling and redress; (2) the Principles form an overarching regulatory framework and may legitimately inform or augment specific ICOB/ICOBS rules where those rules do not exhaust the Principles' scope; and (3) the FSA's complaints-led, root-cause measures and related DISP amendments do not unlawfully usurp or circumvent the statutory consumer-redress mechanism under s404, so the Policy Statement was lawful on the challenged grounds.