From 1 April 2019, the Financial Ombudsman Service (FOS) can make awards against regulated firms of up to £350,000, which represents an increase of 133%. The following award limits will apply:
- £350,000 for complaints about acts or omissions by firms which took place on or after 1 April 2019; or
- £160,000 for complaints about acts or omissions by firms which took place before 1 April 2019 and which are referred to the ombudsman service on or after 1 April 2019; and
- £150,000 for existing complaints.
Good news for potential complainants
This development raises interesting questions about the role of the FOS, a route which was originally intended to be a quick, informal and free service to handle low value complaints.
The change highlights the Financial Ombudsman Service (FOS) as an even more attractive forum for complainants when faced with the alternative of complex, costly, court proceedings.
Small and medium-sized enterprises (SMEs) with an annual turnover below £6.5 million and fewer than 50 employees, or an annual balance sheet below £5 million, will now be able to refer complaints to the FOS. Currently businesses with less than 10 employees and annual turnover or annual balance sheet of less that £2million (referred to as a “micro-enterprise”), can refer complaints to the FOS. (See the FCA’s rules on eligibility here)
As a consequence of these changes it seems likely that there will be more FOS complaints from larger businesses together with a greater number of high compensation awards. The FCA estimates that the new rules will mean that around 210,000 additional UK SMEs will be eligible to complain to the FOS.
Another objective of the FCA and FOS is that the increased limit will encourage firms to improve their conduct, for example behaviour and product governance, in situations where the higher compensation limit could be awarded. This could result in greater consumer protection levels and a fairer financial services industry.
Implications for financial advisers
The changes will have knock on effects for a range of professions.
The FCA received 130 responses to its consultation paper on the increase to the ombudsman’s compensation limit, with most responses coming from personal investment firms, particularly small independent financial advisers, and insurers providing professional indemnity insurance (PII) to these firms.
Many of these firms have been sceptical due to the affect FOS’s decision is likely to have on the professional indemnity insurance market. The changes will lead to an increase in premiums which in turn could force small firms to stop providing advice.
Furthermore these firms providing financial advice will need to revisit and update their claims management procedures as they now face a greater exposure to claims from SMEs.
LEXLAW Financial Services Litigation & Dispute Resolution
Our Financial Services Litigation team of Solicitors and Barristers in London are highly experienced in banking litigation and specialise in representing SMEs in banking disputes. Our high profile and high value cases regularly appear in the national and international media. Our banking litigators advise on the protection of borrower legal rights in the face of predatory bank practices. We have successfully managed and settled court litigation against all major UK banks.
Whether you’re an individual or part of an SME or charity, where FOS is the appropriate or preferred course of action, we can assist eligible complainants in making complaints to the FOS by preparing submissions and evidence on your behalf.
Call us on 02071830529 or complete our online contact form.
Financial Services Litigation Team, LEXLAW