From 1 April, the Financial Ombudsman Service (FOS) can demand firms compensate consumers and businesses to the tune of £350,000 ($444,653, €395,093), up from £150,000.
Naturally, a few eyebrows were raised.
The move has made it even more difficult for firms to secure the necessary professional indemnity (PI) insurance they need.
In a letter dated 17 May, seen by International Adviser, Nisha Arora, director, consumer and retail policy, provided more information to firms.
Since publishing the FCA’s policy statement explaining its decision to increase the FOS award limit, Arora said, “my team has engaged with a number of stakeholders, including PI insurance providers and brokers”.
The letter outlines details those stakeholders requested.
“We think this information will help address some of the issues or questions stakeholders have raised regarding the ombudsman service’s approach to complaints, and improve PI insurers’ understanding of the potential distribution of high value compensation awards,” Arora added.
Copies of the letter were also sent to a number of professional bodies; including the British Insurance Brokers Association, Broker Network, the Personal Investment Management and Financial Advice Association and the Personal Finance Society, among others.
Additional governance arrangements
One of the questions raised by stakeholders was governance arrangements for high value complaints.
In response, the ombudsman service has now updated its online technical resource on compensation with a note on award limit governance.
“The additional arrangements build on existing robust quality assurance principles and controls by ensuring that all cases where the potential award for compensation is more than £150,000 are reported to the ombudsman’s legal team and its senior manager,” the FCA said.
“This is to help ensure that all relevant sources of information and relevant points of law have been considered, and that complaints have been considered in a consistent way.”
Following requests from insurers and brokers, the FCA is making data tables available that provide a breakdown of the aggregate annual total additional redress figures.
The estimates are drawn from three years of data provided by the ombudsman service on the total number of complaints received, average uphold rate, and the compensation awards made by ombudsmen and case handlers.
Knowing your limits
The final point revolves around businesses determining which limit applied to each case.
Under the new rules, the maximum award for a case prior to 1 April 2019 is £160,000 – while those eligible for up to £350,000 had to take place after that date.
In most cases, the ombudsman will decide the limit based on what happened in the case and the proper application of the rules to those circumstances.
However, if there is a question, or the firm thinks there should be, the firm in question will have an opportunity to make representations about the application of the time limits in those circumstances.