The FCA has recently announced major proposed extensions to the jurisdiction of the Financial Ombudsman Service (FOS) which are of importance to SME businesses and consumers with higher value claims.
At present the FOS has to power to award only £150,000 compensation. It can recommend that more is paid but a financial services business against whom an award is made can chose not to pay more than £150,000.
Since the costs rules relating to litigation changed in 2013, effectively meaning that any insurance premium paid to protect a claimant against the risk of an adverse costs order had to be paid from any compensation recovered it has been very difficult for claimants to achieve full and fair compensation for valid claims valued at up to £500,000 in the financial services and insurance sector: on the one hand if eligible for the FOS they would be likely to recover only £150,000 and if they chose to litigate, they had to either face a significant financial risk of paying the defendant’s costs if the case failed, or if insurance was taken to protect against that risk, they faced a significant discount to their compensation to pay for that premium, along with any funding costs.
The FCA proposals will go some way to alleviate that problem. The proposal is that from April 2019 the FOS limit will be increased to £350,000. This will apply only to new complaints which relate to alleged wrongs after April 2019. For complaints submitted after this date but relating to actions before April 2019, the increase will only be to £160,000. These limits will also increase annually with inflation.
In addition to these financial limits, the FCA is intending to extend the pool of eligible complainants who can use the FOS. This will extend the businesses able to use the FOS from “micro enterprises” to include also “small businesses”. This covers businesses with an annual turnover of less than £6.5 million and which either employ less than 50 people or have a balance sheet total of less than £5 million. The financial limits for charities and trusts will also increase. These changes are estimated to bring over 200,000 additional businesses within the jurisdiction of the FOS.
Claire Collinson Legal has long established experience of working with individuals and SMEs involved in dispute situations to resolve those disputes in a cost effective and bespoke manner. These developments at the FOS are a welcome development and will provide additional options for many clients along with other procedures at our disposal.