The Financial Conduct Authority has proposed increasing the Financial Ombudsman Service's compensation limit to £350,000.
At the moment the Fos is limited to awarding compensation to a maximum of £150,000 but the regulator has proposed increasing this as part of its plans to expand the ombudsman's services to small and medium enterprises (SMEs).
The changes mean that from 1 April 2019 SMEs will be able to complain to the Fos and, if the incident complained about took place on or after this date, they will be able to claim up to £350,000.
If it took place before 1 April 2019 the compensation limit will be £160,000.
Both limits will be increased by consumer prices inflation every year to make sure consumers and small businesses receive adequate compensation.
The FCA said: "We have published these proposals in response to concerns that because we have not increased the award limit for over six years (when it went up from £100,000 to £150,000), many existing complainants are failing to receive adequate compensation."
The regulator said the higher limit was also needed because the existing one was too low for SMEs.
It said: "We have considered and rejected the option of only having a substantially higher limit for larger SMEs as our evidence suggests that existing complainants (individual consumers and micro‑enterprises) also experience complaints where compensation exceeds the current award limit."
But the adviser trade body, the Personal Investment Management & Financial Advice Association (Pimfa), expressed concern about the increased compensation limit.
Liz Field, the Pimfa chief executive, said: "Pimfa are deeply concerned that this proposed move could act as a barrier to entry for smaller firms as this will impact a firm’s ability to obtain professional indemnity insurance at a viable economic cost.
"This could reduce the number of firms within our profession and further widen the advice gap. We will be responding to the consultation paper and raising our concerns with FCA.
"Our profession has an essential role to play in helping to build a culture of savings and investments, and this move could severely impact firm’s ability to be able to provide this vital service to clients."
The expansion of the Fos to SMEs follows a review of the protections available to these businesses as users of financial services which began in 2015, and the case of the treatment of small businesses by Royal Bank of Scotland turnaround unit, which was accused of artificially distressing otherwise viable businesses.
The changes will mean that SMEs with an annual turnover below £6.5m and fewer than 50 employees, or an annual balance sheet below £5m will be able to refer unresolved complaints to the ombudsman service.
It means around 210,000 additional SMEs will be eligible to complain to the Fos.
The Fos has said it will create a ring-fenced, specialist unit of 20 investigators to handle its complaints from SMEs.