The Financial Conduct Authority (“FCA”) confirmed in its Policy Statement PS 19/8 published on 12 March 2019 that the Financial Ombudsman Service (“FOS”) will soon be able to require financial services firms to pay double the current amount of compensation to consumers and businesses. The FCA is aware that there is a very short turn around however, they have argued that the FCA did propose the changes in their Consultation Paper CP18/31 in October last year, already stating that the change to increase the limit may occur on 1 April 2019.
INCREASE IN COMPENSATION LIMIT
From 1 April 2019, the current £150,000 limit will increase to £350,000 for complaints about actions by firms on or after that date. For complaints about actions before 1 April 2019 that are referred to the FOS after that date, the limit will only rise to £160,000. To clarify, any complaints referred to the FOS prior to the 1 April will remain at the current limit. The FCA has also confirmed that both these limits will be automatically adjusted in line with inflation (as measured by the Consumer Price Index) on an annual basis going forward.
By increasing both the compensation limit and the scope of small and medium sized enterprises (“SMEs”) having access to the FOS this will most likely increase the number of claims referred to the FOS and could result in awards rising in both numbers and value.
In October 2018, the FCA extended access to the FOS to more SMEs. The changes mean that SMEs with an annual turnover of under £6.5 million, an annual balance sheet total of under £5 million, or fewer than 50 employees will also be able to refer complaints to the FOS. This means an additional 210,000 SMEs will be able to send referrals to the FOS.
The changes were introduced to allow a wider scope of SMEs to access the service. The FCA confirmed in its previous policy statement that the criteria for access to the service have been amended so that SMEs only need meet the turnover test and one of either the headcount or balance sheet total tests, and not all 3 tests as previously proposed. The changes were implemented in response to feedback that applying all 3 tests would unfairly exclude certain types of SME, for example those with relatively low turnover but 50 or more employees.
The increase to the compensation limit will apply to financial services and other industry representative bodies, legal services providers, consumer groups, professional indemnity insurance insurers and brokers as well as all firms and other financial businesses covered by the ombudsman service’s Compulsory and Voluntary Jurisdictions.
As mentioned above, please note the quick turnaround – all firms falling in the above categories must be ready to meet the requirements by 1 April 2019.
To access the Policy Statement on increasing the compensation limit, please click here.
To read more detail on the extension of the FOS to SMEs, please click here.
For more information, and any guidance or advice on the impact of the recent changes to the increased FOS award limit, Cleveland & Co, your External in-house counsel, are here to help.