On 16 October 2018, the FCA published near final rules which provide that, as of 1 April 2019, more small and medium-sized enterprises (SMEs) as well as larger charities, trusts and personal guarantors will be able to lodge complaints with the Financial Ombudsman Service (FOS). The new rules aim is to make it easier and more cost effective for these complainants to resolve disputes and to further promote the FCA's consumer protection objective.
To bring about this change, the FCA proposes to amend the definition of "eligible complainant" in DISP to provide that SMEs with an annual turnover below £6.5m and either fewer than 50 employees or an annual balance sheet below £5m will now be able to refer unresolved complaints to the service. (The current requirements are that a business must employ fewer than 10 persons and have an annual turnover or balance sheet total of less than €2m.)
The significant majority of respondents to the consultation supported the extension of the FOS' jurisdiction. However, some dissenters suggested that a separate tribunal providing a court-like process for financial services disputes should be set up. The All Party Parliamentary Group on Fair Business Banking echoed this view and was concerned about complainants facing long delays and bad decisions because the FOS may not be equipped to deal with complex disputes.
The FCA has sought to address these concerns by proposing a ring-fenced team of 20 investigators with specialist knowledge and skills. However, with approximately 210,000 additional SMEs having access to the FOS, it is questionable whether such a small team can really make a difference. With existing complainants already facing long delays in some cases, greater resource is plainly required.
Hand in hand with this change, the FCA is consulting on an increase to the maximum amount of compensation the FOS can award from £150,000 to £350,000 (and to £160,000 for complaints about acts and omissions before 1 April 2019). The existing cap has not increased for some 6 years, so an uplift is certainly due. The FCA said that the change would ensure that "complaints about a higher value product can be fairly compensated…" It is difficult to disagree with this assessment. That said, firms may fear the financial consequences of 'bad' FOS decisions if the limit is increased.
The FCA's proposed changes to the FOS' jurisdiction and powers are positive, especially for SMEs. These changes may ultimately lead to firms altering the way they handle FOS complaints. For example, it may result in firms making an increased effort to keep the matter from going to the FOS at all, either by providing a detailed response or through settlement. It will be interesting to see how the FOS will respond, both in terms of the increased caseload, and the likelihood of more complex and higher value complaints.