Full Circle Asset Management Ltd v Financial Ombudsman Service Ltd & Ors

An ombudsman determining a complaint must assess what is fair and reasonable in the complainant’s individual circumstances. A finding that an investment portfolio is generally medium risk does not establish that it is suitable for a particular investor. Where a firm has made a personal recommendation, suitability requires a sufficiently detailed assessment of the client’s circumstances, objectives, capacity to bear loss and requirements. The Financial Ombudsman Service and the financial regulator perform distinct functions. A decision based on individual suitability does not depart from a regulatory assessment of the portfolio’s general risk profile, and therefore requires no special explanation on that ground.

The claimant investment manager challenged the second determination of the Financial Ombudsman Service upholding Mrs King’s complaint about the suitability of a discretionary model portfolio and directing compensation. An earlier determination had been quashed by consent and the complaint remitted to a different ombudsman.

The claimant argued that the portfolio had been independently assessed as medium risk and that the regulator had accepted that assessment. It contended that the ombudsman had unlawfully departed from the regulatory standard, mischaracterised the complaint and acted unfairly. The central issue was whether the ombudsman was entitled to determine suitability by reference to Mrs King’s individual circumstances rather than the portfolio’s overall risk classification.

1. Application dismissed. The claimant’s challenge to the second Ombudsman’s determination failed.
2. Under Financial Services and Markets Act 2000, section 228(2), the Ombudsman had to determine the complaint by reference to what was fair and reasonable in all the circumstances. The Ombudsman was entitled to identify the substance of the complaint from the correspondence and surrounding material. The function was inquisitorial and concerned complaints rather than legal causes of action, as explained in R (Heather Moor and Edgecomb Ltd) v Financial Ombudsman Service [2008] EWCA Civ 642 and R (Keith Williams) v Financial Ombudsman Service [2008] EWHC 2142 (Admin).
3. The Ombudsman’s finding that the claimant had made a personal recommendation was an unchallenged finding of fact. Judicial review was not an appeal on the facts. The court therefore proceeded on the basis that the finding was lawful.
4. A general assessment that a model portfolio was medium risk was not dispositive of an individual suitability complaint. The Ombudsman was entitled to consider the investor’s age, retirement, dependence on the invested capital, income requirements, desired level of investment, need for diversification and ability to bear loss. The use of undefined labels such as medium or average risk did not replace that assessment.
5. The regulator’s role in setting standards for regulated firms was distinct from the Ombudsman’s role in determining individual complaints. The Ombudsman had not departed from the regulator’s assessment of the portfolio’s general risk profile; it had addressed a different question, namely whether the portfolio was suitable for Mrs King. No additional reasons were required on the supposed basis that the Ombudsman had rejected the regulatory standard.
6. The claimant had received the provisional determination and had made further submissions. The process was therefore not unfair. The Ombudsman gave adequate reasons and there was no breach of the European Convention on Human Rights.

The judgment records that an earlier Ombudsman determination had been quashed by consent and the complaint remitted for fresh determination by a different Ombudsman. The present proceedings were a first-instance judicial review of that fresh determination.