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FOS Award Limit to Increase to £350,000

22nd October 2018

Proposed increases to FOS award limits

The FCA is currently consulting upon increasing the Financial Ombudsman Service’s (FOS) award limit in their Consultation Paper CP18/31 ‘Increasing the award limit for the Financial Ombudsman Service’. The award limit sets out the amount of compensation the FOS can require financial services firms to pay when it upholds a complaint against them.

Since the FOS award limit has not been increased for over six years, (when it went up from £100,000 to £150,000), it seems that many existing complainants are failing to receive adequate compensation.

The proposals put forth by the FCA look to increase the current £150,000 award limit, for complaints referred to the ombudsman service from next April:

• For acts or omissions by firms on or after 1st April 2019, the Ombudsman’s award limit should increase to £350,000; and
• For acts or omissions by firms before 1st April 2019, the Ombudsman’s award limit will increase to £160,000.

The regulator also proposes that each year thereafter the awards should automatically be adjusted on 1st April to ensure that they keep pace with inflation as measured by the Consumer Price Index (CPI).

It should be noted that any complaints referred to the ombudsman service before 1st April 2019, the limit will remain at £150,000.

Increasing FOS Award Limits and why?

The FCA’s proposed changes to the FOS award limit is to ensure that more complainants receive fair compensation when the FOS upholds their complaint against a firm.

The FCA’s analysis detailed within the Consultation Paper indicates that there could be approximately 2,000 complaints upheld by FOS each year where the amount of compensation the service determines is due is above the current award limit. Thus, at present, if firms do not voluntarily pay compensation above the award limit then complainants could be suffering an aggregate financial harm of around £113M per year!

It seems that whilst the number of ‘high value’ complaints is fairly low, (detailed at just over 1% of all complaints upheld by FOS), there is a risk of very significant financial harm to complainants if they do not receive the full amount of fair compensation that FOS considers is due to them.

The FCA feels that it is unlikely that the individuals and businesses who are eligible to complain to FOS would have the means to pursue firms for unpaid compensation through the courts.

The existing limits are also partly considered too low when looking to meet the needs of some of the proposed newly eligible complainants, most notably small and medium-sized enterprises (SMEs) who will become eligible for the Ombudsman Service following as detailed in the near-final rules published in Policy Statement PS18/21 this month entitled ‘SME access to the Financial Ombudsman Service – near final rules’

For those that would like to participate in the consultation, comments should be submitted to the FCA by 21st December 2018.

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