John Green and Paul Rowley, partners developing commercial property, executed an interest rate swap with The Royal Bank of Scotland plc on 25 May 2005, on a notional £1.5 million for ten years, following a meeting on 19 May 2005. Base rate fell sharply from late 2008, and in early 2009 the cost of terminating the swap early was calculated at £138,650. They issued a claim form on 25 May 2011 alleging the swap had been mis-sold. The claim failed before His Honour Judge Waksman QC in the Mercantile Court at Manchester, [2012] EWHC 3661 (QB), and the appeal was dismissed on 9 October 2013, Tomlinson LJ giving the leading judgment.
The statutory claim was abandoned before trial as time-barred. On appeal leading counsel argued the concession was likely to be wrong, but it stood, and the court expressed no view on limitation.
The appellants argued that the existence of the COB rules generated a co-extensive common law duty. Tomlinson LJ rejected that. Parliament had provided a remedy in section 150, which told against imposing an independent common law duty of the same content, and the bank was not carrying out a statutory duty when it sold the swap. Both rules bind execution-only firms, so they say nothing about whether an advisory duty exists. On content, the not-misleading limb of COB 2.1.3R falls within the common law duty, but the duty to communicate clearly or fairly goes beyond accuracy, and the COB 5.4.3R duty to ensure the customer understands the risks lies well outside a duty not to mis-state. The Financial Conduct Authority had permission to intervene, but the court expressed no view on whether the rules were contravened.
One point runs the other way. Where a firm has assumed an advisory duty, the content of that duty is informed by the regulator's rules. Tomlinson LJ recorded that approach with approval, citing Beatson J in Shore v Sedgwick Financial Services Ltd, who said the skill and care expected of a reasonably competent financial adviser "ordinarily includes compliance with the relevant regulatory rules".
Section 150 became section 138D FSMA 2000 when Part 9A was substituted by the Financial Services Act 2012, in force from 1 April 2013. A private person therefore has a statutory cause of action that does not depend on an assumed advisory duty, while a claimant outside that class must make out a common law duty on ordinary principles. Professional indemnity wordings generally respond to civil liability including breach of statutory duty, but the insuring clause and any regulatory exclusions repay checking, and no policy meets a regulatory fine.
Because an advisory duty takes its content from the rules, a file recording the service basis, the risk warnings and the client's understanding serves as both compliance evidence and claim defence material. The point is developed in the IFA professional indemnity guide and, for intermediaries subject to ICOBS, the insurance brokers' professional indemnity guide. See also section 138D FSMA and breach of statutory duty and the information duty owed by a non-advising party.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.