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.
Andrew Bailey, chief executive of the FCA said: "We recognise it is vitally important for SMEs to have a mechanism to resolve disputes and we are clear the Financial Ombudsman Service is the right route for this.
"The changes we are making are as far as we think we should go within our powers, but they will provide access to the ombudsman service for a significant number of smaller businesses. Before this their only option was potentially a costly legal one through the courts.
"The changes are an important extension of the ombudsman service’s role and remit. We will work closely with them to ensure that they are ready, so that SMEs are able to benefit from the new rules as soon as they come into force."
While the FCA said most respondents to its consultation earlier in the year were in favour of the proposals, the regulator said there were some "fundamental" objections, including from six financial services membership bodies.
These organisations disagreed with the proposals because they considered the SMEs should be large enough to look after their own interests in disputes with firms, with no need for a special redress channel and some warned they would be larger than most small financial services firms and so would already have greater bargaining power.
But in response the FCA said: "We accept that certain types of firm, such as independent financial advisers and insurance and mortgage brokers, will typically be smaller than most of the newly‑eligible SMEs they might end up in dispute with.
"However, we think this argument largely ignores the gulf in financial services expertise between specialist firms, who must also meet FCA training and competence requirements, and SMEs for whom purchasing financial services is not their core business.
"Financial services firms will, therefore, be better at gauging the risks involved with the product or service they offer than their SME clients."
The FCA added that it had publicly stated its support for a tribunal that could deal with disputes that fall outside the ombudsman service’s remit, but did not see this as mutually exclusive with extending the Fos's remit.
damian.fantato@ft.com
