The Financial Conduct Authority has confirmed an annual increase to the award limits of the Financial Ombudsman Service.
The Financial Ombudsman Service (“FOS”) is a free service which investigates complaints from the clients of regulated financial advice businesses. It might be said to be on the front line of dispute resolution between financial businesses and their customers.
The FOS has always had limits on the amounts that it can award to disappointed consumers, but from 1st April 2020 those limits are scheduled to rise by considerable sum.
For complaints about acts or omissions by regulated financial advice firms before 1st April 2019 but which are referred to the FOS after that date, the compensation limit is £160,000.
However, the limit for complaints referred to the FOS after 1st April 2020 about acts or omissions by firms on or after 1st April 2019 is scheduled to rise to £355,000.
The Financial Conduct Authority decided to raise compensation limits after estimating that there could be up to 500 complaints upheld by the ombudsman service each year in which the amount of compensation this service was able to award was above the previous limit of £150,000.
The FCA said that whilst the number of these high value complaints is relatively small, there was a risk of “very significant financial harm” to complainants if they did not receive the “full amount of compensation” the ombudsman service considered should be due.
It pointed out that complaints worth in excess of £150,000 typically involved insurance that protects consumers from a significant loss, advice on long-term investments that would provide an income in retirement or the investments themselves.
For small businesses, such complaints also included large commercial loans where the affordability of repayments could have a significant impact on the viability of the business that had borrowed the money.
The FCA considered it unlikely that the individuals and businesses who are eligible to complain to the ombudsman service would have resources to pursue firms for unpaid compensation through the courts.
Previously, if a complainant’s case was worth over £150,000 and FOS found in his/her favour, the complainant had a difficult choice to make of accepting the bird in hand which was represented by the £150,000 or the two or three birds in the bush which might be achieved by going to court. People have been put off going to court by the costs and risks involved and have sometimes accepted a lower amount of compensation which does not reflect the extent of the damage caused to their financial health by the firm in question.
This issue was recently highlighted in a case against St James’ Place. According to the FOS, a couple named Mr and Mrs J were sold whole life policies by that firm. Due to suffering ongoing health issues, Mr J took a complaint to the ombudsman.
Although Mr J’s losses could have been between £261,000 and £370,000 FOS could only order St James’ Place to pay Mr J £150,000 plus interest at 8% from 25th June 2018. The adjudicator pointed out that Mr J may not be able to take St James’ Place to court for the remaining loss if he was to accept the FOS award of £150,000, and that he should take legal advice were he to consider doing so.
If the complaint had arisen under the new regime, of course FOS would have been able to order St James’ Place to compensate Mr J fully for his losses.
People whose complaints arise out of act or omissions taking place after 1st April 2019 and who make complaints to the Financial Ombudsman Service in the future will now be more likely to be properly fully compensated for their losses.
Sometimes bringing a complaint to FOS can seem intimidating. Complainants can be faced with well-resourced financial businesses with high technical skills, and in many cases represented by their professional indemnity insurers.
In more complicated cases to maximise your chances of success you should consider seeking specialist legal advice to make sure that the strongest elements of your complaint are made very clear. This will maximise the chances of a successful complaint and avoid the risk of critical details being buried under things which are less important or less persuasive.
For further advice and assistance with FOS claims, please contact Wards’ Partner James Taylor at firstname.lastname@example.org.