Financial watchdog increases compensation limit for consumers and businesses
A new higher compensation limit of £350,000 for consumers who have their complaints against financial services companies upheld by the UK's financial watchdog will come in to effect next month (April 1).
It is an increase of £200,000 from the current £150,000 maximum and will also now be adjusted every year in line with inflation.
At the same time, in addition to the individual consumers and businesses with less than 10 employees (micro-enterprises) currently eligible for compensation, the list will be extended to include small and medium-sized businesses (SMEs), charities, trusts and personal guarantors.
New rules
The new rules have been ordered by the Financial Conduct Authority (FCA) to allow the Financial Ombudsman Service (FOS) to increase the amount of compensation it can order a financial services company to pay out if a complaint is upheld in favour of a consumer.
The move follows an FCA consultation which showed there have been up to 500 complaints each year where the consumer is owed more than £150,000 meaning they could be left out of pocket unless the company pays the extra compensation voluntarily.
Fair compensation essential
Andrew Bailey, the FCA's Chief Executive says: "Consumers and small businesses struggle with the cost and time needed to take firms to court, so it is essential they can receive fair compensation from the Financial Ombudsman Service when things go wrong.
"We have listened carefully to the feedback we have received and believe our approach is right and will bring benefits to both the consumers and micro-enterprises currently eligible for the ombudsman service and the small businesses which will become eligible in April."
Even so, some industry commentators have warned that the plans will have huge "unintended consequences" as it could lead to the cost of professional indemnity insurance for advisers more than doubling, something that could be passed on to clients via increased fees.
Deadline information
The new £350,000 limit only applies to financial services advice given after 1 April 2019 so when a complaint is made, and when the issue complained about happened, are crucial.
- If you complain before April 1, and it is upheld, the maximum amount of compensation you could be awarded is £150,000;
- If you complain on or after April 1 about something that happened before that date, the maximum compensation rises by £10,000 to £160,000;
- If you complain on or after April 1 about something than happened on or after that date, you could be awarded the maximum compensation of £350,000.
An additional 210,000 SMEs will now be able to take any complaints to the FOS under the new rules which broaden eligibility to include firms with an annual turnover of under £6.5 million, an annual balance sheet total of less than £5 million, or fewer than 50 employees.
What's good about the changes?
When it comes to consumer complaints about financial services, the changes mean higher value cases, which might previously have had to go to court, can now be handled by the FOS instead.
Because legal costs are not recoverable, a claim can be brought safe in the knowledge that a complainant won't have to pay an adviser's legal costs if the complaint fails.
The FOS is a good forum because it:
- Provides an independent view with industry knowledge and awareness;
- Knows the rules, and the standards, that financial service advisors are supposed to adhere to;
- Any award it delivers can be enforced as though it were a court judgement after an application is made to the court.
It's important to note that there are normally no grey areas when it comes to the FOS - you either win or lose your case and any award is generally 'all or nothing'.
Even so, Wards Solicitors has successfully overcome cases rejected by the FOS in the first instance.
Don't forget….
It's important to remember that making a FOS complaint doesn't stop the clock ticking in relation to the six year time limit that applies if you want to bring a claim to court (unless a 'standstill' agreement is entered in to).
Sometimes, the courts will take a dim view if you haven't tried this avenue first and may limit your ability to recover legal costs.
Specialist legal advice can improve your chances of the FOS upholding your complaint, although the FOS will not order your legal costs to be paid by the other side.
If you need help and advice about taking a complaint to the FOS, please contact James Taylor who deals with financial services disputes at Wards Solicitors.