An adviser forum is calling on advisers to oppose the proposed increase to the Financial Ombudsman Service’s compensation limit, warning the increase could spell the death of the small IFA.
Earlier this week the Financial Conduct Authority published proposals to increase the maximum compensation to be awarded by the Fos to £350,000, up from its current limit of £150,000.
Panacea Adviser will issue a response to the FCA's consultation on behalf of advisers and has called on advisers to complete a questionnaire on its website to assist with the initiative.
CEO Derek Bradley said: "Experience has shown that a ‘consultation’ in regulatory speak is simply a notification that the decision is made and this is just a polite ‘heads up’.
"We believe that this will see the end of smaller IFA firms due to impossible capital adequacy requirements caused by higher excesses to deal with £350,000 claims. It will be the end of anyone looking to start a new firm."
The regulator proposed the increase as part of its plans to extend the ombudsman's remit to handling complaints from small and medium enterprises (SMEs).
A consultation on the matter closes on 21 December. If implemented the changes will take effect from 1 April 2019.
At the moment the Fos is limited to awarding compensation to a maximum of £150,000.
But under the plans SMEs and individuals will be able to claim up to £350,000 in awards if the incident complained about took place on or after 1 April 2019.
If it took place before 1 April 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 at the time: "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."
Panacea's questionnaire is available on its website.
rachel.addison@ft.com
