From 1 April 2019, SMEs will be able to refer complaints relating to acts or omissions that take place after that date to the financial ombudsman service (FOS). In last month's policy statement (PS18/21) the FCA relaxed the original eligibility criteria it proposed for SMEs so that an "eligible complainant" will include a person with an annual turnover of less than £6.5 million and either fewer than 50 staff or an annual balance sheet total of less than £5m (not both, as originally suggested). This means around 210,000 more SMEs should have access to the FOS.
The new rules are expected to be reviewed within 2 years of coming into force, which will include an assessment of whether the micro-enterprise test should be amended to only cover payment services complaints and whether additional rules are needed to prevent certain types of special purpose entity from accessing the FOS.
Alongside PS18/21, the FCA published a consultation paper (CP18/31) on increasing the award limit of the FOS from £150,000 to:
- £350,000 for complaints about acts or omissions by firms after 1 April 2019; and
- £160,000 for complaints about acts or omissions by firms before 1 April 2019, and which are referred to FOS after that date.
Complaints referred to FOS before 1 April 2019 would remain subject to the current limit of £150,000. The £10,000 increase for complaints made after 1 April 2019 about events occurring before that date is intended to reflect general price inflation. This is in keeping with the approach and reasoning the FCA took towards the last increase in 2012, when the limit was raised from £100,000 to £150,000. Since the increase was based solely on general price inflation the award limit will not actually increase in real terms.
However, according to the FCA the increase to £350,000 seeks to mitigate potential harm to customers where, for high value claims above the limit, any difference is not paid by firms on a voluntary basis. The FCA thinks that this can lead to poor customer outcomes in that:
- whether a firm pays out above the limit as a matter of course is not information available to customers to allow them to choose between service providers
- customers could be treated different by the same firm if - the firm values one customer's business above another's and decides to pay over the limit for the former but not the latter.
The FCA considers it unlikely that individuals and businesses who are eligible to complain to FOS would have the means to pursue firms for unpaid compensation through the courts – and so seeks to redress the risk to such complaints by increasing the limit. Less than 1% of the claims determined by FOS in a year fall into this "high value" category, so the sudden change on 1 April 2019 is not expected to affect a lot of people. However, with awards potentially differing by as much as £200,000 if the event complained about occurs before or after 1 April 2019, for those it does: there's a lot at stake.
If you have any questions about the policy statement or consultation paper please feel free to contact us.
Authored by Charles Elliott and Caroline Walters