Today (27 November) the Financial Conduct Authority said it is considering raising the cap on compensation paid out by the Financial Ombudsman Service to more than £150,000.
In a discussion paper, the regulator posed the questions: “Should the ombudsman service’s award limit be increased from its current value of £150,000 for some or all SME (small and medium-sized enterprise) complainants?
“Would it be fair for different award limits to apply to eligible complainants depending on whether the complainant is a business or an individual consumer?”
The usual amount of redress that the Fos can order firms to pay is currently capped at £150,000 for SMEs.
The limit was raised in 2011 from £100,000 to £150,000.
Additionally, the FCA is asking whether more SMEs should be given access to the Financial Ombudsman Service.
The FCA said it is seeking views on the variety of topics within the paper by 18 March 2016.
At present, the FCA stated only a small minority of SMEs are unable to take complaints to the ombudsman.
However, the FCA said the businesses unable to do so account for a substantial share of the sector’s demand for financial services, and some of them are likely to be less experienced dealing with financial products and services despite their greater size.
The FCA is also considering whether the financial services industry could use voluntary standards such as the Lending Code to further improve the experience of small businesses, and asks what the high-level ambition for such codes should be.
The discussion paper follows a number of issues with the way some financial services firms have treated their SME clients, and the provisional findings of the Competition and Markets Authority into retail banking.
The FCA said its own research has found that complex products, limited choice and poorly managed expectations may expose SMEs to risk; so can cognitive and behavioural biases.
Christopher Woolard, director of strategy and competition at the Financial Conduct Authority, said: “Small businesses are a vital part of the UK economy. We need to consider whether we’re doing our part in delivering an effective, proportionate regulatory framework that gives them the confidence required to use the financial services they need to grow.”
Daren O’Brien, director at Aurora Financial Solutions, said: “Any increase in possible Fos compensation payments is likely to increase our PI costs and liabilities, so that will have an effect on our charges to the SME market.
“I’m not sure that increased costs will help the FCA’s encouragement of SMEs to use and have confidence in the IFA advice market.”