A law firm is calling for reforms to the Financial Ombudsman Service if its proposed compensation increase goes ahead, in order to maintain a "sensible balance" between the interests of consumers and the industry.
In October the Financial Conduct Authority proposed increasing the Fos' compensation limit up from £150,000 to £350,000, as part of the regulator’s plans to expand the ombudsman's services to small and medium enterprises (SMEs).
The FCA’s consultation on the matter is due to close tomorrow (December 21).
Law firm RPC has warned if the FCA were to implement the increase to the Fos’ compensation limit, the ombudsman’s process also had to be reformed to ensure a "level playing field for financial services firms and consumers".
RPC has suggested financial advisers should be able to appeal a Fos judgement, claiming the current system of prioritising an individual’s decision to accept a ruling left firms with "very limited mechanism of judicial reviews".
The law firm suggested an appeal process offered to both parties may encourage the Fos to make more "equitable and consistent decisions" and therefore justify a higher award limit.
In its second suggested reform, RPC advised Fos decisions should be based on principles of law rather than what it considers to be "fair and reasonable", as currently applied to its rulings.
The law firm suggested many financial services firms currently saw the service as providing "far less favourable" decisions than may be achieved through the courts.
A RPC spokesperson said: "RPC says that many financial services firms would prefer Fos to judge disputes on the basis of established law and to require full disclosure of evidence.
"This would ensure that a consistent approach is applied to all disputes.
"Certainly without the requirement for Fos to apply the law, at least for higher value matters, it is very difficult to justify the proposed increase to the Fos' award limit."
RPC stated it recognised any reforms to the ombudsman’s process would require government intervention to amend statute governing its jurisdiction.
The FCA's proposed changes to the ombudsman's compensation limit would mean 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.
Concerns have been raised that an increase in claims, and for larger amounts, could increase the cost of professional indemnity insurance and potentially push smaller firms out of the market.
Rob Morris, partner at RPC, said: "The FOS compensation process needs to walk the line of giving a fair deal to consumers and reasonable access to justice for the industry.
"Many financial services firms feel that at the FOS the cards are already stacked against them. If the potential awards they face are to go up by such a dramatic percentage then there needs to be some counterweight to help financial services firms."