Small and Medium Enterprises (SME) will be able to take complaints about financial businesses to the Financial Ombudsman Service (FOS) from 1 April 2019 under plans announced by the Financial Conduct Authority (FCA). The regulator is also consulting on increasing the maximum FOS award from £150,000 to £350,000.
At present the FOS only considers complaints from micro-enterprises with an annual turnover or balance sheet less than €2million and fewer than 10 staff. Under the new rules SMEs with up to 50 employees, an annual balance sheet below £5m, or an annual turnover of less than £6.5m will be able to refer complaints to the ombudsman.
The FCA estimates that around 210,000 SMEs will now be eligible to complain to the FOS and has published ‘near-final’ rules for the operation of the extended scheme.
Andrew Bailey, Chief Executive of the FCA said: “We recognise it is vitally important for SMEs to have a mechanism to resolve disputes and we are clear the Financial Ombudsman Service is the right route for this.”
At the same time the FCA is consulting on increasing the maximum FOS award to £350,000. It says its proposals “will ensure more complainants receive fair compensation when the ombudsman service upholds their complaint against a financial services firm.” The FCA estimates that around 2,000 complaints each year recommend compensation above the current limit of £150,000.
The FCA has accepted that professional indemnity insurance premiums may increase following the proposed increase in maximum FOS award. Commentators have expressed fears that the increase in compensation limits could make it harder for financial advisers to access professional indemnity insurance (PII).
“The increased access to the FOS will be of less concern to insurers than the proposed change to the award limit,” says James Burgoyne, Director – Claims & Technical, Brunel Professions. “The FOS is often considered “rough justice” as it is not obliged to follow the same legal principles as the courts, but this more informal approach was balanced by a relatively modest award limit, limiting the financial impact of an FOS decision. The proposed changes more than double this limit.”
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