A fuss about FOS?

The Financial Ombudsman Service (“FOS”), the independent body that helps to resolve disputes between financial services businesses and their customers, has just announced another increase to its compensation limits with effect from 1 April 2024. 

The new limits set the maximum amount of compensation that the FOS can order a financial services business pay to a customer when they uphold a complaint made by a consumer or smaller business. The limit is adjusted each year to reflect inflation.

The FOS has confirmed that from 1 April 2024 its award limits will go up to:

• £430,000 for complaints referred to it on or after 1 April 2024 about acts or omissions by firms on or after 1 April 2019 (up from £415,000)
• £195,000 for complaints referred to it on or after 1 April 2024 about acts or omissions by firms before 1 April 2019 (up from £190,000)

It is important to note different compensation limits apply depending on when the complaint was brought to the attention of the FOS.

The aim in increasing the compensation limits is to ensure that more complainants receive fair compensation. This particularly applies in respect of higher value complaints that generally relate to higher value, or more complex, products or services (for example, in relation to long term insurances, pensions or investments) where there is a risk of very significant, and possibly long term, harm being suffered by complainants if they do not receive full recovery of the sums they have lost. 

The Financial Conduct Authority, which sets the FOS financial limits, considers it likely that individuals or businesses who are eligible to complain to the FOS in respect of these issues would not have the financial means to pursue firms for such levels of compensation through the Court system.

The last few years has undoubtedly seen a significant rise in the amount of compensation that the FOS can award and, with that, an increase in the number of complaints been considered by the FOS. 

FOS’s jurisdiction is expanding not only in financial terms but also in respect of the identities of those people and business who are eligible to bring complaints to it. 

All of this has led some in the financial services industry to question whether it is now fair that the FOS, which exercises a fairly rough and ready form of justice (when compared to the bells and whistles of the Court process), should hold such sway, especially in higher value complaints. Those complaints will often have more at stake for both customers and firms. And the facts and matters underpinning these disputes can be complex and arguably better suited for careful judicial consideration, when the Court can test both factual and expert evidence, than for the FOS complaint process. 

The increased limits may also lead to higher premiums being required of adviser firms for their professional indemnity insurance with the possibility of more exclusions in respect of advice provide by firms to customer in relation to higher value products. 

Perhaps the time is now right for a thorough re-consideration of the FOS’ jurisdiction and an appraisal of its future role as decision maker in more complex financial disputes?