authorised persons in carrying on a consumer credit business in connection with the accepting of deposits (insofar as section 404E relates to, or applies for the purposes of, anything done under the Act concerning things done (or not done) before 1 April 2014);
authorised persons in communicating, or approving the communications by others of, invitations or inducements to engage in investment activity;
A consumer redress scheme could apply to all authorised persons, electronic money issuers or payment service providers or to a specified description of authorised person, electronic money issuer or payment service provider. This means the FCA could create a scheme that applied to a named list of firms. Given that a scheme can apply to authorised persons, it could also apply to incoming EEA firms that are authorised under Schedule 3 to the Act. However, the FCA would need to consider on a case-by-case basis the extent to which this was both practicable and appropriate (having regard to the division of responsibilities between Home and Host State regulators under the various EU Directives that apply to financial services firms).
The FCA will be able to determine, on reasonable grounds, how to characterise the particular activity that a scheme applies to. This will enable the FCA to ensure that a scheme is appropriately focused (e.g. limited to activities carried on in relation to particular products or sectors of the market in question, during specified periods of time). It is possible that a scheme could be combined with the use of other regulatory tools (i.e. a package of measures would be put in place to ensure an issue was addressed comprehensively). Should this be the case, the FCA will clearly set out in its consultation paper how the different elements of the package inter-relate.
Where the financial services to which a scheme applies are those provided by authorised persons in carrying on regulated activities, the limitation to ‘regulated activities’ means that a consumer redress scheme cannot apply to services that were provided before the activity in question first became regulated by the FSA or FCA (e.g. the start date of a scheme applying to general insurance mediation could not be earlier than 14 January 2005, which was the commencement of regulation of general insurance mediation).
For the purposes of a scheme, a consumer can be any person who has used, or may have contemplated using, any of the financial services listed in section 404E(2) of the Act (see CONRED 1.4.1G), or has relevant rights or interests in relation to any of those services. As such, the section 404 power is not limited to retail customers only.
That said, a consumer redress scheme can only be used to secure redress for consumers who have a legal cause of action. In some cases, the cause of action is limited to private persons in any event. For example, rights of action in respect of breaches of FCA rules are generally limited to private persons, and the Unfair Terms Regulations are limited to individuals acting outside their trade, business or profession. In contrast, claims for misrepresentation can be brought under the general law by all types of person.
In addition, the FCA may choose to focus a scheme on retail customers, having regard in particular to the fact that they tend to have less experience and expertise. However, the FCA will also have regard to the fact that many retail customers are also investors in, or beneficiaries of, funds and pension schemes which may have incurred loss from the failure. It may be that the inclusion of such funds or pension schemes amongst those to whom redress ought to be given will bring benefit to the underlying retail customers.
The fact that a consumer “who may have contemplated using” a relevant financial service can be covered by a consumer redress scheme is unlikely to catch many cases in practice. One example of a case where it might be used is where there has been widespread discrimination: the section 404 power could be used to ensure redress for consumers who were unlawfully denied access to a financial service contrary to any relevant equality legislation. All the restrictions and evidence requirements explained in CONRED 1 would apply equally to any scheme developed in this sort of area.
The limits of a consumer redress scheme’s application will be clearly defined within the scheme rules and a scheme will only bind those firms to which it applies. Firms that are unsure whether or not a scheme applies to their activities are encouraged to raise the issue with their supervisory contact in the normal way.
For example, the FCA could put in place a scheme in relation to unfair variation terms in regulated mortgage contracts. The underlying reasons for the FCA’s decision that a variation term in a regulated mortgage contract is unfair could potentially apply to a variation term in an insurance contract that fell outside the scope of the scheme. However, the Unfair Terms Regulations expressly state that all the circumstances attending the conclusion of the contract must be taken into account when assessing the unfairness of a contractual term. Therefore, if the FCA wanted to take action in relation to the term in the insurance contract using its other regulatory powers, it would need to ensure that it had considered all the relevant issues separately to those considered as part of the scheme for regulated mortgage contracts.