FCA Proposes Changes to the Financial Ombudsman Service (FOS)

The FCA has announced several proposed changes to the FOS which will impact upon all firms.


Consultation Paper - CP18/31: Increasing the award limit for the Financial Ombudsman Service

Looking first at the Consultation Paper, the last increase to the ombudsman service’s award limit was carried out by the FSA in January 2012, when it rose from £100,000 to £150,000.

The FCA has now set out why it believes that a £150,000 award limit is no longer adequate, and why it should be increased to £350,000 for new complaints.

The higher limit of £350,000 would only apply to complaints about firms’ acts or omissions that happen on or after the date the new award limit comes into force, provisionally 1 April 2019. It is hoped that this date will be confirmed by the regulator over the next few months.

For all other complaints (i.e. about acts or omissions prior to 1 April 2019), the proposal is to increase
the current limit to £160,000.

There is a further proposal to ensure that, in the future, both limits are automatically adjusted in line with inflation.

As ever, we would encourage all firms to read the Consultation Paper and make their views known to the regulator. This is your opportunity to help shape regulation.


Policy Statement - PS18/21: SME access to the Financial Ombudsman Service - near-final rules

Turning now to the Policy Statement; the FCA has published near-final rules on extending access to the Financial Ombudsman Service (FOS) to more small and medium-sized enterprises (SMEs), as well as larger charities and trusts and a new category of personal guarantors.

These rules set out the eligibility criteria that these complainants must meet to be able to refer complaints against financial services firms to the ombudsman service.

The FCA has stated that, making it easier for SMEs to resolve disputes with firms by giving them access to the ombudsman service will help to further the regulator’s consumer protection objective.

Under the current rules, a significant number of SME firms are not eligible to access the FOS service. Also, in the FCA's view, many SMEs are likely to struggle to resolve disputes with firms as they do not have the necessary financial management and legal resources.

These SMEs may, therefore, be unable to pursue redress when firms have treated them poorly.

For completeness, the current eligibility rules are:

Complaints can be brought by, or on behalf of, customers (or potential customers) who are private individuals or micro-enterprises.

Micro-enterprises (an EU term covering smaller businesses) can bring complaints to the ombudsman as long as they have an annual turnover of up to two million euros and fewer than ten employees.

In January 2018, the regulator published a Consultation Paper (CP18/3) proposing that SMEs with fewer than 50 employees, annual turnover of under £6.5m and an annual balance sheet total of under £5m should be able to access the ombudsman service on the same terms as individual consumers and micro-enterprises (the smallest SMEs). These are termed 'Small Businesses'.

They proposed broadly equivalent eligibility criteria for charities and trusts and it was also proposed that personal guarantors of loans to a business they are involved in should also be able to complain to the ombudsman service. This was a new category, as currently, such individuals are outside of the FOS remit.

Following consultation, the FCA took into account the various views and made some changes to their original approach. These changes are explained in more detail in the Policy Statement; in summary, the FCA has seen fit to relax the proposed eligibility criteria for SMEs and Small Businesses so that they would only have to meet the turnover test and one of either the headcount or balance sheet total tests, rather than all three. The proposed definition of an 'Eligible Complainant' to FOS will be:

  • a consumer; or
  • a micro-enterprise at the time the complainant refers the complaint to the respondent; or
  • a charity which has an annual income of less than £6.5 million at the time the complainant refers the complaint to the respondent; or
  • a trustee of a trust which has a net asset value of less than £5 million at the time the complainant refers the complaint to the respondent; or
  • (in relation to CBTL business) a CBTL consumer; or
  • a small business at the time the complainant refers the complaint to the respondent; or
  • a guarantor.

The FCA has also allowed the ombudsman service more time to prepare for the changes.

In addition, the FCA will take time to consider the changes as part of a wider consideration of the ombudsman service’s business plan and budget for 2019-20. Obviously, such a widening may have significant impacts on the budget and business plan and needs careful consideration.

The FCA estimates that the changes will mean around 210,000 additional SMEs will have access to the ombudsman service. This may have a significant impact on the FOS resources.

Finally, the FCA intends that these changes to the FOS eligibility criteria will come into force on 1 April 2019.

They will confirm the commencement date when the final rules are published and it is hoped that this will happen by the end of the current year once the FCA has considered the FOS business plan and budget needs.

About the author

Terence has over 35 years' experience in the Financial Services environment, covering general insurance, investments and mortgages.

Before joining RWA, Terence worked for a large PLC insurance brokerage in Manchester, overseeing some 20 acquisitions. He served as Compliance Director at RWA from 2011 to 2018 and has worked with insurance broking firms of all sizes across the UK. He has a particular interest in Financial Crime and the protecting the insurance broker. Terence previously served as Executive Chairman of the Association of Professional Compliance Consultants (APCC), the professional body for the compliance consultancy sector.

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