Firm application for JR of FOS decision rejected

Charles Street Securities Europe LLP had applied for judicial review of a FOS decision. FOS had upheld a complaint made by a retired businessman against the firm. The client had originally signed an agreement with the firm in 2006 as a private client, but 5 months later agreed to be treated by the firm as an intermediate client and said that he was prepared to accept a high level of risk on 25% of his investments. He complained to FOS that all the investment opportunities the firm had presented to him over three years were identified to him as being high risk and high reward, and that the firm should be responsible to him for the losses he incurred when the investments performed poorly.

FOS held the firm had not taken sufficient care to ascertain the client’s true financial position or level of expertise and should not have treated him as an intermediate client, and therefore owed him duties as a private client. While the client had understood the risk, and had also made an informed choice to increase his risk from 20% to 25%, the Ombudsman found the firm should not have recommended high-risk investments above the client’s loss limit. She said the firm should have done more than merely ensure the information it gave the client was correct, it should have ensured the investment was suitable for him taking his financial position into account.  Moreover, it had been unreasonable for it to continue to propose high risk investments when it became clear the client could not sustain the losses.

The Ombudsman made an award and recommended the firm pay additional compensation. The firm considered the Ombudsman had reached irrational conclusions in respect of all of (1) the firm’s duty to give investment advice to the client (2) compensation and (3) causation.

The court refused the application. It said the Ombudsman had been entitled to conclude that the firm did advise the client as it had sent him documents and then called to discuss them. Also her finding that the firm had a duty t consider the claimant’s capacity for loss and stop recommending high-risk investments at that point had many lawful and rational bases. She had not, as the firm alleged, misunderstood the distinction between information and advice, and had suggested compensation based only on losses that flowed from the breach of the duty identified.  She also acknowledged that the client had made confusing statements about his capacity for high-risk investments and that he did in fact wish to make them – but said that had the firm not allowed him to, he would have had difficulty in finding an alternative adviser to take on his risk profile.  The award was calculated on the basis of investments made after the client had exceeded the stated 25% risk tolerance – at which point the Ombudsman said the firm should have clearly wanted the client that the threshold had been reached.

Emma Radmore