Financial Conduct Authority (FCA) could face civil damages lawsuits.
Currently, The Financial Service and Markets Act 2000 gives the FCA and Prudential Regulation Authority immunity from civil liability in damages caused by negligence.
Citywire New Model Adviser has reported that the FCA will be liable to civil damages if MPs vote to pass the abolishment of this longstanding immunity.
The regulators’ immunity does not extend to claims for bad faith or contraventions of the Human Rights Act 1998, nor does it prevent claims for judicial review of their decisions or challenges in the Financial Services Tribunal regarding regulatory actions.
However, New Model Adviser has learned that a group of Scottish National Party MPs tabled an amendment clause to the financial services and markets bill that could strip the FCA of its immunity to civil cases.
The amendment, which still needs to pass the committee stage, was first proposed by the campaign action group the Transparency Task Force. After the committee stage, it will go to the third reading in parliament before it receives Royal Assent. New Model Adviser understands the Treasury is expecting the entire bill to pass by April next year.
Although the amendments could allow negligence claims against FCA there is no outline of how the regulators will pay for the legal costs or damages that go against it, but options could include a levy on firms.
Simon Harrington, head of public affairs at the Personal Investment Management & Financial Advice Association, said: ‘While we absolutely understand the provenance of the proposed amendment and recognise the very real harm that has been perpetuated because of unregulated firms, it would be extremely concerning to us if these costs were ultimately borne by existing industry participants.
‘The cost of regulation and additional compensation through funding the Financial Services Compensation Scheme is already a significant burden for many firms in this industry and this would add an additional layer to well-run firms.’
The FCA declined to comment.