Court of Appeal dismisses judicial review challenge of FOS decision

The Court of Appeal has dismissed a judicial review application by a pension provider in respect of a decision made by the Financial Services Ombudsman Service (FOS): Options UK Personal Pensions LLP v Financial Ombudsman Service [2024] EWCA Civ 541. 

As reminder, under section 228 of the Financial Services and Markets Act 2000, the FOS is tasked with determining complaints based on what it deems fair and reasonable in all the circumstances of the case. This means that the FOS is not strictly bound by legal precedent or statute, but must consider all relevant factors to reach a fair and reasonable conclusion.

The present case related to a complaint lodged by a customer who experienced losses after investing in a pension scheme recommended by an introducer firm. The FOS decision found that the defendant, a regulated self-invested personal pension (SIPP) provider, owed a duty to the customer to conduct due diligence on both the introducer firm and the investment scheme. 

The defendant challenged the FOS decision, arguing (amongst other things) that the FOS had failed to acknowledge and provide reasons for holding it liable in circumstances where a court would not.

The court upheld the FOS decision, finding that the FOS had adequately explained the reasons for its decision. The court reiterated that the FOS is not required to determine a complaint exclusively in accordance with the common law. Instead, the FOS is required to reach an opinion about what is fair and reasonable in the circumstances of the particular complaint, having taken into account law and regulation, regulators' rules, guidance and standards, codes of practice, and, where appropriate, good industry practice. Notably, the Financial Conduct Authority's Principles for Businesses (Principles) should be taken into account by the FOS as they create an overarching framework and indeed may form the basis for upholding a complaint and therefore an award for compensation. The fact that the Principles are not "actionable" by way of a claim does not impact this conclusion. Indeed, there is authority to the effect that it would be a breach of statutory duty to reach a view on a complaint without taking the Principles into account.

The court also recognised that the FOS must explain the reasoning of a decision clearly to ensure it can be understood and is capable of being judicially reviewed on the grounds of perversity and/or irrationality (per R (Heather Moor & Edgecomb) v FOS [2008] EWCA Civ 642). However, the court clarified that it was not necessary for the FOS, "in each and every case, [to] first, set out all the relevant contractual provisions and tortious duties which apply and state why it is considered appropriate in the particular case to go beyond them". In fact, it was not intended that "the same exercise should be carried out in a formulaic manner in relation to regulations which are actionable […], before turning on to non-actionable regulations, guidance and best practice".

The court's decision is a reminder to financial institutions of the flexibility and discretion of the FOS to consider a broad variety of factors when reaching a fair and reasonable decision on a complaint. There is a risk that this broad remit could potentially lead to decisions that diverge from strict legal principles.

For more information please see our Public Law blog post.