Recent changes to the reach of the Financial Ombudsman Service (FOS) have been welcomed by some and questioned by others. The impact of these changes on consumers, financial services firms and the FOS itself is likely to be equally mixed.
For the last six years, the maximum compensation that the FOS has been able to award to a successful claimant has been £150,000. Whilst such an amount may be more than adequate to fully compensate many individual retail claimants, the FCA has recognised that, for many others, it represents an arbitrary, low ceiling that may make using the FOS unattractive. The FOS is now increasingly presented with disputes that are considerably more valuable than the cap - the FCA estimates that around 500 such complaints are submitted each year. Such claimants may well not have losses at the level to justify taking Court action, let alone the capacity to meet legal costs, and therefore could be left between a "rock and a hard place" in terms of redress.
In response, following a short consultation, the FCA has decided to increase the maximum damages payable to £350,000 for claims commenced after 1 April 2019 and to £160,000 for on-going claims. This represents a significant increase in respect of new claims. This increase will of course be welcomed by individual consumers and the raising of the cap after six years is plainly appropriate. For financial services firms, whilst a pay-out of £350,000 (and usually no costs) may not seem overly onerous, adverse FOS decisions need to be taken seriously. They often point to systemic issues that may suggest that multiple claims - also likely to be successful - will follow, the combined impact of which can be very significant indeed. This is all the more so after the increase.
In addition to raising the cap, the FCA has increased the levels of the eligibility criteria for small business to bring claims before the FOS. Accordingly, from 1 April 2019 businesses with an annual turnover of less than £6.5m and either less than 50 employees, or a balance sheet below £5m, will be eligible to use the FOS.
These changes will serve to substantially increase the number of small businesses that are entitled to use the FOS. During the consultation, many financial services firms questioned the fairness of these rises and whether a small business toward the upper end of these ranges could not afford to use the Courts.
The impact on the FOS of these changes should also not be ignored. Inevitably more claims will be brought and, in turn, more vigorously defended by financial services firms. This will inevitably put more pressure on the FOS, which is already under-resourced. The FOS has reacted by bringing in extra resource in the form of 20 specialists to deal with SME cases in particular, but this may conceivably not be sufficient.
The FCA heard calls during the consultation process for the establishment of a new Tribunal, to sit between the FOS and the Courts. Whilst the FCA was supportive of that idea in principle, such a reform is unlikely any time soon. It seems likely therefore that the FOS will now be faced with a bigger and more complex caseload than ever before. This will inevitably lead to greater delays and potentially more unpredictable decision making – bad news for both claimants and defendants.