With effect from 1 April 2019, the UK Financial Ombudsman Service (FOS) has made two signiﬁcant changes.
1. The maximum value of the award that the FOS can grant has increased from £150k to £350k; and
2. The deﬁnition of those eligible to complain to the FOS has been widened to include small and medium sized enterprises (SMEs).
The FOS is an independent body that handles complaints between customers and those providing regulated ﬁnancial services, such as independent ﬁnancial advisers, insurance brokers, MGAs and insurers. The recent changes will likely see an increase in the number of those making complaints to the FOS.
Increase in the maximum value that can be awarded
Previously, the maximum award that the FOS could make was £150k. From 1 April 2019, a new limit of £350k applies to complaints that are referred to the FOS about acts or omissions by ﬁrms that have taken place from this date. For complaints made to the FOS after 1 April 2019, but which relate to acts or omissions prior to this date, the maximum award is £160k and, for those complaints which have already been lodged with the FOS, the maximum award will remain at the former £150k.
From 1 April 2020, and annually thereafter, the award limit will be automatically adjusted in line with inﬂation.
Broadening the deﬁnition of an eligible complainant
Currently, businesses with less than 10 employees and an annual turnover, or annual balance sheet, of less than €2 million can refer complaints to the FOS. From 1 April 2019, the deﬁnition of eligible complainant has been widened to include SMEs that:
Have an annual turnover of less than £6.5m; and
i. employ fewer than 50 people; or
ii. have a balance sheet total of less than £5m.
Certain charities, trusts and personal guarantors will now also be able to complain to the FOS. In the FCA’s policy statement on this matter, they estimate that this change will mean around 210k additional SMEs will have access to the FOS.
Why have these changes been made?
Following an analysis by the FCA, they felt that many complainants with high-value claims could not afford to resolve their complaint through the courts and therefore, it was important to ensure that they could turn to the FOS for resolution of their claim. In keeping with the FCA’s principles for business, the changes aim to:
• Ensure complainants receive fair compensation when a ﬁrm has not acted fairly or reasonably;
• Increase the integrity of the UK ﬁnancial system by improving consumer protection; and
• Promote competition as ﬁrms will have to pay more as a result of poor conduct, meaning there should be an improvement in standards and market conduct.
What does this mean for you?
To the extent that any clients make allegations of errors or omissions towards you, those clients may now be entitled to make a complaint to the FOS. You may see an increase in this type of activity given the above changes as the FOS is free for clients to access, whereas the court process is costly. As there is now an increased pool of those eligible to make a complaint to the FOS, and as the awards the FOS can make are now much greater, we expect to see an increase in the number of claims being made. This could result in increases to premiums or a reduction in the Professional Indemnity Insurance cover available.
What do I need to do?
Some PII policies contain a cap (which may be lower than the new levels of £350k) to the amount that insurers will pay in relation to Ombudsman awards. It is important to check with your broker on this point and if necessary, take immediate action to increase the amount in line with the changes which took effect from April 1st 2019. If for any reason you are unable to obtain cover at the appropriate level, the FCA will need to be informed and this will likely have an impact on the amount of Capital Resource that the ﬁrm needs to hold. For any advice or assistance on this or any other insurance matter, contact the Howden team for an initial free consultation.
Written by Steve Ray