UK: Financial Services Bill: Royal Assent Following Removal of Collective Actions Provisions

Last Updated: 13 April 2010
Article by Sarah Redlich, Simon Morris and Guy Pendell


The Financial Services Bill, having reached its third reading in the House of Lords, has received royal assent before the dissolution of Parliament prior to the general election. This has primarily been achieved by the removal of its proposed, and ultimately controversial, provisions in relation to collective actions.


The Financial Services Bill had contained provisions to provide a specific right to financial consumers to bring collective actions against authorised firms in order to seek redress for losses suffered. Had these provisions remained in the Bill and been passed, they would potentially have had a major impact on the financial sector, both providing financial consumers with another means by which to seek redress and also seeing financial firms face the potential risks and costs of such actions.

Both the industry and other bodies raised serious concerns about the provisions, in particular in relation to the scope of the right, which, as drafted, was not confined to financial consumer claimants; the fact that the right was not explicitly set out as an option of last resort; the fact that so much of its operation was left to secondary legislation; and because the provisions provided for the Courts to allow group actions to be brought on an "opt out" basis, which would have been far more aligned to US style class actions.

Lord Myners was reported last Thursday explaining that the provisions were removed to allow the Bill to receive royal assent before Parliament was dissolved.


  • The industry and other bodies will be pleased that their concerns appear to have prompted the removal of the provisions and it will also mean, for the moment at least, that financial firms are not facing the prospect of such actions and the potential risks and costs that they can bring;
  • The removal of the provisions mean that, for the moment, financial consumers will not have a specific right to bring group actions against authorised firms. Consumer bodies have already been reported as voicing their concern in relation to consumer protection and urging the next government to review the right to collective redress as soon as possible in the next Parliament;
  • Financial consumers, will, however still be able to pursue group actions under the existing general group litigation court procedures provided certain criteria are met – procedures which are available to any claimant group, not just within the financial sector. They can continue to seek redress via the existing alternative channels available in the financial sector, namely through the Financial Ombudsman Service, the Financial Services Compensation Scheme, and via FSA action to require firms to redress its customers;
  • The existing group litigation procedures have been used infrequently in the financial sector, not least because of the existence of these available alternatives. Therefore, there is a question as to whether the collective actions provisions were, and are still, actually needed;
  • It remains to be seen whether any revised or new collective actions provisions are proposed by the next government. Despite removing the collective redress provisions from the Bill, Lord Myners was reported last week as having said that such measures "were necessary, sensible, and desirable". In debate the Lords made clear that they did not regard this "as the end of the story" for collective proceedings and believe that such a right should be progressed on a holistic basis (i.e. for all consumers, not simply those in the financial sector) but, alongside this, a proper entrenchment of the principle that the Courts are the option of last, not first, resort. The Conservatives have tough regulatory action and consumer protection as high on their agenda as that of the present government; this includes their proposal for a Consumer Protection Agency which would certainly appear to strengthen the rights of consumers to seek redress.

Consumer redress schemes

  • Importantly, the provisions in the Bill providing the FSA with the power to order redress across the industry have remained and have been passed in the form drafted. Previously, such redress could only be required by an order obtained by the Treasury;
  • The industry and other bodies also had concerns about these provisions, not least because it would mean the FSA had the power to order redress without having investigated individual firms and would potentially mean that even compliant firms would still have to review their practices and incur the costs of doing so in order to demonstrate their compliance. In terms of the detail of the provisions, criticism was levelled at their paucity and the lack of clarity as to how and when such orders would be made, the basis on which the FSA might decide that such a scheme was necessary and appropriate, and the nature and scope of such schemes;
  • Arguably, this power will be of more concern to the financial industry going forward, given the likelihood that the FSA will use it to drive forward its aim of dealing with, reducing, and potentially eradicating large-scale mis-selling and the causes of it;
  • The FSA will need to do so, and demonstrate they are doing so reasonably, proportionately, and on a proper and sound basis in order to allay the industry's concerns about the nature and scope of such schemes and their concerns that they are used only where there is a sound and proper basis for doing so.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 12/04/2010.

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