(1)This section applies if—
(a)it appears to the FCA that there may have been a widespread or regular failure by relevant firms to comply with requirements applicable to the carrying on by them of any activity;
(b)it appears to it that, as a result, consumers have suffered (or may suffer) loss or damage in respect of which, if they brought legal proceedings, a remedy or relief would be available in the proceedings; and
(c)it considers that it is desirable to make rules for the purpose of securing that redress is made to the consumers in respect of the failure (having regard to other ways in which consumers may obtain redress).
(2)
“Relevant firms” means—
(a)authorised persons; . . .
(b)payment service providers. or
(c)electronic money issuers.
(3)The FCA may make rules requiring each relevant firm (or each relevant firm of a specified description) which has carried on the activity on or after the specified date to establish and operate a consumer redress scheme.
(4)
A “consumer redress scheme” is a scheme under which the firm is required to take one or more of the following steps in relation to the activity.
(5)The firm must first investigate whether, on or after the specified date, it has failed to comply with the requirements mentioned in subsection (1)(a) that are applicable to the carrying on by it of the activity.
(6)The next step is for the firm to determine whether the failure has caused (or may cause) loss or damage to consumers.
(7)If the firm determines that the failure has caused (or may cause) loss or damage to consumers, it must then—
(a)determine what the redress should be in respect of the failure; and
(b)make the redress to the consumers.
(8)A relevant firm is required to take the above steps in relation to any particular consumer even if, after the rules are made, a defence of limitation becomes available to the firm in respect of the loss or damage in question.
(9)Before making rules under this section, the FCA must consult the scheme operator of the ombudsman scheme.
(10)For the meaning of consumers, see section 404E.
Cases considering section 404 (13)
[2024] EWCA Civ 1125 · 2 October 2024Limits
The threshold conditions governing market-wide consumer redress schemes do not apply by implication to a single-firm permission requirement, which performs a different regulatory function (see paras [67]-[68]; [75]-[76]).
Its threshold requirements attach to a market-wide scheme and are not imported into the FCA’s distinct power to vary an individual firm’s permission (see paras [67]-[68]; [76]).
[2021] EWCA Civ 557 · 16 April 2021Limits
The court uses section 404 to distinguish a statutory consumer redress scheme from the voluntary FCA-bank review. The review was not imposed under section 404 and did not bring review complaints within FOS jurisdiction. (see paras [10]; [12]; [26]; [44])
The court sets out the statutory conditions for section 404 to apply, using them as part of the comparison with the voluntary review. It does not decide a separate issue under subsection (1). (see para [10])
The court sets out widespread or regular non-compliance as one condition of a statutory redress scheme, without separately construing it. (see para [10])
The court sets out consumer loss or damage for which a legal remedy would be available as one statutory condition, without separately construing it. (see para [10])
The court sets out desirability of rules securing redress as a further statutory condition, without separately construing it. (see para [10])
The court sets out the statutory definition of a consumer redress scheme as part of its comparison with the voluntary review. It does not construe subsection (4) separately. (see para [10])
The court identifies investigation of possible non-compliance as the first step in the statutory scheme, without separately applying subsection (5). (see para [10])
The court identifies determination of consumer loss or damage as a step in the statutory scheme, without separately applying subsection (6). (see para [10])
The court identifies determination and payment of redress as the final statutory steps, without separately construing subsection (7). (see para [10])
The court identifies determination of the appropriate redress as one final step in the statutory scheme, without separately applying paragraph (a). (see para [10])
The court identifies making redress to consumers as the concluding step in the statutory scheme, without separately applying paragraph (b). (see para [10])
[2017] EWCA Civ 1073 · 24 July 2017Limits
The regulator may require firms to establish consumer redress schemes. Parliament intended the regulator, rather than individual customers, to enforce such schemes, which weighed against a parallel common law duty (see paras [18]; [87]).
What each judgment says about section 404 is in the case-law panel in the full Act.
716.This section enables the Treasury, by order under subsection (2), to set out the framework for a scheme to be established and operated by the Authority to require authorised persons to review their past business and, where appropriate, to determine the amounts payable by those persons by way of compensation for liabilities that they have incurred to private investors and certain others. This power will facilitate the handling of issues such as those which arose in cases of mis-selling - most notably of personal pensions.
717.Sections 405 to 408 concern reciprocity powers. Under certain EC directives a decision can be taken by the Council of the European Union or the Commission to require individual member States’ regulators to take reciprocal action to deprive subsidiaries of firms from a country outside the European Economic Area (EEA) of access to their markets. This is referred to in the Act as a “third country decision”. Such a decision may be taken where it appears to the Commission that EEA firms wishing to establish themselves or provide financial services in third countries are not being treated on the same basis and offered the same competitive opportunities as domestic firms.
718.The potential for reciprocity action has diminished following World Trade Organisation (“WTO”) negotiations on financial services which resulted in the EU, along with many other WTO member countries, making a commitment to offer Most Favoured Nation treatment to other WTO members on a permanent basis. This commitment came into force on 1 March 1999 and means that EC reciprocity powers can now only be used against countries outside the WTO.