Britain to make it easier to sue banks – government source
LONDON, Nov 16 (Reuters) – The British government will this week outline legislation allowing consumers to group together to claim damages from financial institutions that mislead customers over financial products, a government source said on Monday.
The Financial Services Authority (FSA) will also be given greater freedom to demand banks pay compensation to large numbers of consumers who share the same complaint as part of a raft of measures aimed at cleaning up the financial sector.
The Labour government, well behind in opinion polls to the opposition Conservatives with an election due by mid-2010, launches its legislative timetable this week aiming to win back ground among voters by flushing out opposition policies.
The proposed changes come as part of new legislation for the financial sector including powers, detailed by finance minister Alistair Darling at the weekend, for the FSA to intervene if it feels bankers’ contracts encourage risk.
The government wants to give more power to consumers to keep the banking sector in check, by making it easier to pursue more affordable avenues of complaint — either as a group in the courts or through a stronger FSA, the source said.
Under current laws, courts have to assess each individual claim for damages over the mis-selling of products such as mortgages, pensions or other investments vehicles, making it too expensive and unattractive for many complainants.
“It’s groundbreaking in that it would allow genuine group action through the courts in the case of widespread mis-selling or abuse,” the source said.
The FSA would also get tougher enforcement powers to back its strategy of becoming more intrusive in the way it polices financial rules.
The draft law will introduce “future punishment for past actions”, an official source said.
This would be done by forcing a firm to suspend for a period of time the business line, such as offering mortgages, where the rules were broken. Currently the FSA can only fine past behaviour and lawyers scent spats looming.
“The most worrying rule for firms is the idea that authorisation for some activities may be suspended solely as a punishment for past regulatory breaches, rather than to protect against future breaches,” said Ash Saluja of CMS Cameron McKenna law firm.
“Firms may well fight back by arguing that such punishment would contravene EU law,” Saluja said.
The draft law will also propose giving the watchdog power to both fine and remove a firm’s authorisation — currently it can only do one or the other.
Other additional powers proposed include allowing the FSA to take action against an employee of a firm who is not directly authorised by the watchdog.
At the present time if an employee has been caught carrying out duties for which FSA approval is needed, the watchdog could only pursue the firm.
If the normal FSA consultation process is adhered to, the new enforcement rules may not take effect before 2011.
It is also unclear whether it would be the FSA or some other body that applies them as the opposition Conservative Party, has pledged to abolish the FSA if it wins the next election as the polls predict.
(Reporting by Matt Falloon and Huw Jones; Editing by Andy Bruce)
((UK Economics desk, firstname.lastname@example.org, Tel: +44 207 542 1894))