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CONRED 1.5 Operation of a consumer redress scheme

Investigation of cases under a consumer redress scheme


1Firms will be responsible for investigating individual cases, within the framework set out by the FCA. The FCA will have a number of options when formulating a scheme. For example, the FCA could:

  1. (1)

    require firms to undertake a proactive file review of all cases falling within the period covered by the scheme; or

  2. (2)

    require firms to contact their customers individually to ask whether they wish their cases to be investigated under the scheme and only investigate the cases of those customers who opt-in; or

  3. (3)

    require firms to publicise the existence of the scheme (e.g. through newspaper advertisements) and only investigate the cases of those customers who opt-in; or

  4. (4)

    publicise the existence of the scheme through an FCA publicity campaign and require firms to investigate the cases of those customers who subsequently opt-in.


It would also be possible to require a combination of these methods within a scheme (e.g. for different types of case). The choice of investigation method would be one of the issues on which the FCA would consult and perform cost benefit analysis (CBA). In doing so, the FCA will have to consider the likely effectiveness of consumer contact exercises.


In the event that a scheme required customers to ‘opt-in’ by a specified date, the FCA would ensure that the scheme covered how to deal with customers who nevertheless contacted firms after that date.


In some cases, the FCA (or someone acting on its behalf) may carry out the investigation under the scheme instead of the relevant firm (see section 404A(1)(k) of the Act). The scheme rules may provide for this in relation to, for instance, a firm which was refusing to operate a scheme. Another example is provided in CONRED 1.5.6G in relation to formerly authorised persons.


The FCA will be mindful of issues relating to professional indemnity insurance when making rules in this area. For example, the FCA is aware that certain policies prohibit admissions of liability without the written consent of the insurer.

Firms that are no longer authorised by the FCA or have transferred their business to another firm


The FCA has a number of options for dealing with firms that have ceased to be authorised. For example:

  1. (1)

    Where the firm continues to exist and still has assets, the scheme could still apply to that firm (see section 404F(5)(a) of the Act). Alternatively, the scheme rules could provide for the FCA itself (or a third party acting on its behalf) to investigate the cases of formerly authorised persons.

  2. (2)

    Where the firm has ceased to exist, cannot readily be traced or has no assets, the FSCS could declare the firm in default. See CONRED 1.6.23G for details of how the FSCS will deal with cases that fall within a scheme.


Where there has been a transfer of business, the FCA can apply the scheme to the successor firm if it has assumed liability (e.g. where there has been a transfer of a banking business under Part VII of the Act or a firm is otherwise legally liable for the failures of another firm – see section 404F(5)(b) of the Act). Where the successor firm has no legal liability for the failures, the scheme itself could not apply to the successor firm (and so redress would need to be obtained through the options set out above). It may be the case, however, that the successor firm has access to information that may assist in the investigation of persons who have ceased to be authorised. The FCA will be mindful of this.


In these sorts of cases it would be for either the FCA, the third party acting on its behalf, the FSCS or the successor firm (as relevant) to contact affected consumers. The FCA and the FSCS will work together closely to ensure all relevant firms are captured.

Other matters that may be included in the rules of a consumer redress scheme


Section 404A of the Act sets out an illustrative list of particular matters that the FCA may cover in the rules of a scheme.

CONRED 1.5.10G

One of the most important areas where the FCA may be likely to make rules is to set out examples of things done or omitted to be done that are to be regarded as constituting a failure to comply with a requirement (see section 404A(1)(b) of the Act). However, as explained in CONRED 1.3.7G to 1.3.18G, the FCA can only give examples that have been, or would be, held by a court or tribunal to constitute a failure.

CONRED 1.5.11G

Giving examples that are clear and sufficiently comprehensive will be an area to which the FCA pays particular attention, both in its work leading up to a consultation and during the consultation process itself. The FCA will work with relevant stakeholders to ensure the final scheme rules give examples which provide clarity and certainty as to how a firm is expected to operate under the scheme.

CONRED 1.5.12G

Another important area where the FCA can make rules concerns setting out matters to be taken into account, or steps to be taken, by firms for the purpose of:

  1. (1)

    assessing evidence as to a failure to comply with a requirement; or

  2. (2)

    determining whether such a failure has caused (or may cause) loss or damage to consumers (see section 404A(1)(c) of the Act).

Again, the FCA will only be able to do this if the matters set out have been, or would be, taken into account by a court or tribunal for the purpose mentioned. In particular, the FCA cannot disregard the normal legal rules on causation or remoteness of loss. The reference to ‘matters’ is to legally relevant considerations, not to any procedural steps which firms may be required to take. For example, firms may be required to gather certain categories of evidence. Examples of ‘steps’ would be requiring firms to gather evidence by specified methods or to record their decision making in a certain form.

CONRED 1.5.13G

A third significant area relates to the period under review. The consumer redress scheme rules will specify a start date (referred to as the ‘specified date’ in section 404(3) of the Act) and most likely also an end date (see section 404A(1)(f) of the Act) for the activities and sales to be reviewed. This will limit the scope of a firm’s investigations under a scheme.

CONRED 1.5.14G

A fourth area that could be covered in consumer redress scheme rules is the content of a firm’s communication to consumers about the outcome of their investigation under a scheme. Detailing the content of the communications that consumers can expect to receive will ensure consistency across firms as well as clarity for consumers. It will also be of benefit to firms should complaints subsequently be referred to the Financial Ombudsman Service. This is because a comprehensive communication may help to make it apparent to the Ombudsman at the outset that a firm has undertaken its investigation in accordance with the scheme. Firms may also be required to draw the scheme to the attention of the Financial Ombudsman Service in any individual cases that are referred to it. As such, the FCA will consult the Financial Ombudsman Service on the content of such communications.

CONRED 1.5.15G

Fifthly, the scheme rules could require firms to provide information to the FCA (e.g. information about how they are conducting their investigations under the scheme, how many consumers have opted to have their cases reviewed, etc.).

Issues that come to light during the period in which the scheme is running

CONRED 1.5.16G

The FCA will monitor schemes while they are running. If it became apparent during the operation of a scheme that it would be desirable for the scheme rules to cover other issues (e.g. if firms or consumer groups informed the FCA that it would be helpful if further examples of failures pursuant to section 404A(1)(b) of the Act were given), the FCA would be able to amend the rules accordingly. Any such amendments would be subject to the usual consultation process as set out in CONRED 1.2.

CONRED 1.5.17G

Alternatively, the FCA could give general or individual guidance to firms on issues that arise during the operation of a scheme. General guidance would also be subject to the consultation process.

Types of redress a firm can be required to make under a consumer redress scheme

CONRED 1.5.18G

The FCA is able to set out in scheme rules the kinds of redress that are to be made to consumers. The only kinds of redress the FCA can secure in this way are those which it considers to be just (see section 404A(4) and section 404F(1) of the Act). For example, instead of providing cash compensation, the FCA could require firms to top up pensions or offer to alter the terms of a contract.

CONRED 1.5.19G

That said, the FCA is required to have regard to the nature and extent of the losses or damage in question (see section 404A(5) of the Act) and so will take into account the type of relief that a court would grant.

CONRED 1.5.20G

Redress made under a consumer redress scheme may include interest (see section 404F(1) of the Act). Decisions regarding the rate of interest and the basis for calculation will be made on a scheme-by-scheme basis and will be subject to the consultation process.

CONRED 1.5.21G

A consumer redress scheme cannot extend normal limitation periods. Under the Limitation Act 1980, the general position regarding time limits for bringing a claim in England and Wales is as follows:

  1. (1)

    6 years from the event for claims in contract and claims in tort concerning non-latent damages; and

  2. (2)

    3 years from actual or constructive awareness for claims in tort concerning latent damages until 15 years from the event at which point (for most cases) the right to claim expires irrespective of any awareness considerations.

[Note: This is only a summary of the position and the legislation itself should be consulted when determining the limitation period applicable to any particular case. It should also be noted that the position under the law in Scotland and Northern Ireland is different.]

CONRED 1.5.22G

Firms may only be required to make redress to consumers who are within the limitation period for bringing their case to court at the time the FCA makes the rules (see section 404(8) of the Act). In other words, once a scheme has been made the ‘clock will stop’ on the relevant limitation period. For example, if a scheme began in July 2015 and the limitation period for a consumer to take their case to court would have expired in September 2015, the firm would still need to deal with the consumer’s case under the scheme, even if it did not investigate that consumer’s particular case until, for example, November 2015.

CONRED 1.5.23G

The FCA will endeavour to provide as much direction as possible in the scheme rules as to how redress is to be calculated (e.g. by setting out a formula or other methodology) in order to assist both firms and the Ombudsman.

CONRED 1.5.24G

The section 404 power does not in itself remove a consumer’s right to take a case to the courts. However, any redress received in court proceedings would be discounted from compensation payable under a consumer redress scheme and vice versa. Scheme rules would also deal with the situation where a consumer had previously received redress from the Financial Ombudsman Service.

Waivers or modifications of the scheme rules

CONRED 1.5.25G

Firms can apply for a waiver or modification of the scheme rules. For example, if a firm believes that it has already provided redress to relevant customers through a voluntary past business review it can apply to the FCA for a waiver from, or modification of, the rules in the usual way (see section 138A of the Act).

CONRED 1.5.26G

The FCA may not give a waiver or modification unless it is satisfied that:

  1. (1)

    compliance by the firm with the rules, or with the rules as unmodified, would be unduly burdensome, or would not achieve the purpose for which the rules were made; and

  2. (2)

    the waiver or modification would not adversely affect the advancement of any of the FCA’s operational objectives.

CONRED 1.5.27G

The FCA may impose conditions on a waiver or modification (e.g. additional reporting requirements).

Dealing with complaints when a consumer redress scheme is in place

CONRED 1.5.28G

To avoid the risk of potential overlaps between the rules in DISP and the operation of any consumer redress scheme, the FCA has switched off the complaints resolution rules, the complaints time limits rules, the complaints record rules and the complaints reporting rules in relation to complaints where the subject matter falls to be dealt with (or has been dealt with) under a consumer redress scheme. Complaints which fall outside the scope of a scheme will continue to be subject to DISP in the usual way.

CONRED 1.5.29G

The FCA will also consider whether it is appropriate to grant a waiver or modification of the DISP rules whilst a scheme is being consulted on. As set out in CONRED 1.5.27G, the FCA may impose conditions on a waiver or modification (e.g. conditions relating to handling complaints from complainants who claim to be in financial difficulty).

Non-compliance with the consumer redress scheme rules

CONRED 1.5.30G

The FCA has a variety of tools at its disposal if a firm does not comply with a scheme. For example, the FCA will be able to take disciplinary action if a firm is failing to operate a scheme properly (see Part XIV and section 404C of the Act). The FCA is also able to take over the conduct of the investigation required under the scheme, or appoint a third party to do so (see section 404A(1)(k) of the Act).

Publication of the existence of a scheme

CONRED 1.5.31G

The FCA will apply the approach to transparency it has set out in its ‘Transparency discussion paper: Summary of feedback and our response’ (FS13/1) at The FCA has a presumption in favour of transparency, unless there are compelling regulatory, legal or other reasons to the contrary, when considering whether, when and how to publicise a scheme or proposed scheme, over and above its publicity obligations under the Act.

CONRED 1.5.32G

As set out in CONRED 1.2.4G, the FCA would be likely to publicise the work it has been doing in the run up to the launch of a formal consultation paper. The consultation paper itself will be available on the FCA’s website.

CONRED 1.5.33G

Assuming the scheme rules are made following consultation, the final rules will also be available on the FCA’s website. The rules will clearly set out the type of firms and activities to which the scheme applies. The information available on the website will enable third parties such as consumer groups to disseminate information about the scheme.

CONRED 1.5.34G

The FCA will also be able to go further than this in appropriate cases and run its own publicity campaign. This might include newspaper or radio advertisements designed to increase awareness of the scheme amongst consumers. Such advertisements would aim to make clear the scope of the scheme (e.g. the types of products and services the scheme covers) and any action that consumers need to take (e.g. the extent to which they need to contact their firm directly or whether their case will automatically be investigated by the firm without the need for any action on their part).

CONRED 1.5.35G

In addition, the FCA has the option to include in the scheme rules a requirement on firms to publicise the scheme themselves.

CONRED 1.5.36G

In considering whether to publish the names of individual firms that are subject to a scheme, the FCA will also have regard to the FCA’s transparency framework, and in particular its confidentiality restrictions, the extent to which naming firms will enable consumers to make informed judgements (e.g. it may not always be possible to ensure that the list of firms subject to a scheme is exhaustive), as well as relevance and timeliness (e.g. the extent to which consumers will be made aware of the firms involved in a scheme through any customer contact exercise prescribed in the scheme).