‘Consumer’ in the financial services context?

Posted: 24th October 2014

FOSIn a decision which threatens to cut down substantially on the jurisdiction of the Financial Ombudsman Service (FOS), a judge has ruled that a businessman who lodged a complaint against insurance brokers did not fit the legal definition of a 'consumer' and thus fell outside the compulsory protection of the scheme.

The founder of an online betting company had faced a misrepresentation claim from a financial institution which had invested £500,000 in the business before it went into administration. That matter had subsequently been settled and the businessman had claimed under a directors and officers (D&O) policy to recover his loss.

Underwriters refused to pay out on grounds that they had not been notified of the loss until after the policy expired. The businessman claimed that he had informed his brokers of the loss when the policy was still in force and, on that basis, complained to the FOS that, but for the brokers' failure to promptly pass on that information to the underwriters, he would have been indemnified under the policy.

The FOS found that the businessman had complained as a consumer and that it was obliged to consider his complaint by Section 226 of the Financial Services and Markets Act 2000. Under FOS rules, a consumer is defined as 'any natural person acting for purposes outside his trade, business or profession'.

In upholding the brokers’ judicial review challenge and ruling that the FOS erred in law, the judge found that the investor’s claim against the businessman was in respect of his conduct at a time when he was acting as a director of the betting company 'in the course of his trade, business or profession'.

Although the businessman was named in the policy as an ‘insured person’ and had sought to recover a personal loss, his complaint was inextricably linked to his trade, business or profession and there was ‘no proper basis’ on which the FOS could have concluded that he was a consumer within the meaning of the rules.