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Out-Law News 2 min. read

Emphasis on complaints-handling after FOS raises compensation award limit

The impact that current economic circumstances is having on financial services firms has been highlighted by the decision by the Financial Ombudsman Service to raise by more than 10% the maximum amount of compensation consumers can be awarded when complaints against them are upheld, experts have said.

Venetia Jackson and Jonathan Cavill of Pinsent Masons, who specialise in complaint handling and dispute resolution in financial services, were commenting after the FOS announced that as of 1 April, the maximum amount that it can award will increase from £375,000 to £415,000. The new limit will apply to all claims made to FOS after 1 April 2023 about any acts or omissions by firms going back to 1 April 2019.

In 2019, the DISP module of the Financial Conduct Authority (FCA) handbook was amended to increase the compensation limit to £350,000. At the same time, the rules provided for the compensation limit to increase in line with the CPI index of inflation. When the rules were introduced, inflation was running at around between 2% and 2.5% and large increases in the compensation limit seemed unlikely. However, in today’s cost-of-living crisis with inflation recently confirmed at over 10%, the increases are substantial.

Jonathan Cavill said: “This substantial increase comes at a time when firms are already under increased pressure through implementing regulatory change, in particular the FCA’s consumer duty, and when firms are recovering from the impacts of Covid. Although the FOS is free for consumers to make complaints, there is a cost to firms. We can anticipate that with the large increase in the compensation limit, firms will want to consider their approach to complaints handling again, especially in light of the consumer duty obligations to pro-actively consider foreseeable harm and take appropriate action where harm is discovered. Firms will want to consider both robust defences and the usefulness of pro-active remediation schemes to control exposures.”

Venetia Jackson said: “Firms that operate in the typically higher value sectors such as personal pensions and life business will be particularly mindful of the increase in the FOS compensation limit, especially as they will be conducting product reviews of their existing products to comply with the consumer duty by 31 July this year and planning reviews of their closed products for 31 July 2024. The FCA expects firms to identify any harm that may have occurred in their reviews and to take appropriate action. Ensuring robust processes now when carrying out those reviews will help when the FOS’s duty to resolve complaints where ‘fair and reasonable’  is taken into account.”

At the same time, the FCA has launched a new consumer section to its website aimed at helping consumers understand the risks and their rights and remedies as well as where to go to report issues. The new webpage provides clear links to help consumers engage with financial services issues. 

Jonathan Cavill said: “The new consumer section launched by the FCA is in line with the FCA’s own expectations of how firms should be looking to communicate clearly with customers once the consumer duty comes into force. Assuming consumers do become more engaged and understand more about their products through a combination of the FCA and firm efforts, it is to be expected that they will also have an increased awareness of where to go if they wish to complain. Again, firms that have ensured they have comprehensive complaints handling processes will be well placed to ensure good outcomes for consumers in line with FCA expectations, minimising the risk of complaints going to the FOS.”

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