The chief executive of the Financial Ombudsman Service has defended the disruptive increase of its compensation limit despite the fact fewer than 50 cases have been awarded extra cash.
Speaking at a Treasury select committee yesterday (November 9), Caroline Wayman said the number of cases impacted by last year’s compensation limit increase — from £150,000 to £350,000 — was “relatively minimal”.
She said: “It is quite a small impact. Less than 50 cases have been given between £150,000 and £350,000 so far and in the scheme of the number of cases, is relatively modest.
“I’m not very surprised, we always knew it would be relatively unusual.”
Ms Wayman said the areas helped by the extra £200,000 available included pensions, where the defined benefit transfer market sometimes reached the limit, alongside protection, fraud and scams.
In effect from April 1, 2019, the extra compensation limit has caused an issue for advice firms which rely on professional indemnity insurance to protect themselves against complaints.
Warnings were sounded before the limit hike that the change could “cripple” advice firms, and many firms have since seen rises of up to 900% or were priced out of ‘riskier’ markets, such as DB work, altogether.
Given the disruption caused, Anthony Browne, MP for South Cambridgeshire, quizzed Ms Wayman on whether the compensation hike was worth it given the small number of cases helped by the boost.
Mr Browne said: “Quite a lot of businesses have been affected by the increase, in particular financial advisers who are worried about their PI costs.
“If there are only 50 cases above £150,000, is it worth doing?”
But Ms Wayman defended the rise, ultimately decided by the Financial Conduct Authority, saying it was “the right thing to do” as it had been at the previous level for a number of years.
She added: “Our awards are meant to put people back where they would have been had they not been mistreated or missold.
“So while most disputes don’t get near the award limits but for those that do, it really matters that we have the powers that we need.”
50:50 Fos levy
Ms Wayman also defended the changes being proposed to how the ombudsman service is funded.
In July last year, the Fos proposed a funding model with a 50:50 split between case fees and the levy, a move away from its previous split of 85 per cent coming from case fees and 15 per cent from the levy.
The majority of income coming from case fees stemmed from the large number of PPI cases that have been flowing through the service for the past few years, but Ms Wayman said the Fos needed to “prepare for a world without PPI”.
She said: “We need to be able to recover the income we need to run the service, and our overall balance of caseload is shifting significantly from PPI to a diet of much more individualised cases.”
Ms Wayman pledged that the current system, where a firm gets the first 25 cases against it for “free” and then pays a case fee per complaint, mixed with the industry levy would “insulate small firms”.