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In October, the Financial Conduct Authority (“FCA”) announced plans to extend access to, and increase the award limit under the Financial Ombudsman Service (“FOS”). The FOS is an independent organisation set up to review and resolve complaints involving financial products and services in areas such as banking, insurance and financial investments.

Under the current rules only businesses with fewer than 10 staff and an annual balance sheet of up to £2 million (micro-enterprises) can refer their complaints to the FOS and the maximum award that can be made by the FOS is capped at £150,000 (although the FOS can recommend any amount of redress, it is only able to make binding and enforceable awards up to this amount, if the consumer accepts its final decision). This leaves many SMEs, charities and trusts struggling to resolve their disputes with financial services providers as their only redress is to commence litigation.

The FCA has announced a near-finalised set of rules which are expected to be available in their final form later this year and come in to force on 1 April 2019. Under these new plans, businesses with an annual turnover of up to £6.5 million and, fewer than 50 staff or an annual balance sheet of below £5 million, will be able to refer their complaints to the FOS.

In addition, the FCA has also published a consultation to extend the potential award that can be made by the FOS from £150,000 to £350,000 (for complaints concerning acts or omissions which took place on or after 1 April 2019) and £160,000 (for complaints concerning acts or omissions which took place before 1 April 2019). It is proposed that these new limits would increase annually in line with the Consumer Price Index.

The Effect

These reforms will widen access to the FOS and in fact, the FCA estimates a further 210,000 SMEs in the UK will become eligible to have their complaints reviewed by the FOS. The FOS determines complaints on the basis of what is fair and reasonable and is not restricted by the decisions of UK courts. Widening access to the FOS will mean that more SMEs, charities and trusts will be able to resolve complaints without having to resort to litigation.

Seeking a decision under the FOS is quicker and cheaper than pursuing a financial service provider via litigation, therefore widening access to the FOS should help those SMEs, charities and trusts who would struggle to afford litigation and therefore may not pursue a claim. It should be noted however, that the consultation proposes that if the act or omission to which the complaint relates occurred before 1 April 2019, then the maximum award, should the complaint be successful, is the lower amount of £160,000. This means that the FOS will only be able to award the higher amount on future acts or omissions and that businesses with past or existing complaints will have their redress limited.

The FOS is designed to resolve disputes quickly and at no cost to the complainant making it an attractive alternative to litigation. However, currently there are significant backlogs in dealing with complaints expeditiously and its remains to be seen whether any significant changes will be introduced to clear or reduce that backlog before the changes take effect in April 2019.

Furthermore, although the FOS can recommend any amount of redress, its recommendations are only binding and enforceable up to its award limit (currently £150,000, with a consultation to increase to £350,000 in progress). If, however, a business’s complaint exceeds the current FOS award limit it cannot accept a decision from the FOS and then pursue court proceedings for the balance. It does not, in effect, enable businesses or individuals to top up any FOS award by way of subsequent litigation.

Nevertheless, the proposals will be welcome by many and here at Edwin Coe we are able to advise individuals, SMEs, trusts and charities in respect of their eligibility to refer a complaint to the FOS or to pursue their claim via other means.

For further information regarding this topic or any other insurance litigation matters please contact Nicola Maher, or any member of the Edwin Coe Insurance Litigation team.

Edwin Coe LLP is a Limited Liability Partnership, registered in England & Wales (No.OC326366). The Firm is authorised and regulated by the Solicitors Regulation Authority. A list of members of the LLP is available for inspection at our registered office address: 2 Stone Buildings, Lincoln’s Inn, London, WC2A 3TH. “Partner” denotes a member of the LLP or an employee or consultant with the equivalent standing.

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