Changes to FOS access (2)

YOUR COMPLIANCE MATTERS:   Changes to FOS access (2).

Relevance:                   All firms.

Action required:           Awareness of change coming from 01 April 2019

Earlier this year we alerted firms to an FCA Consultation on plans to give more small businesses access to the Financial Ombudsman Service (FOS).

It has recently been announced that the proposals are going ahead, albeit with a slight amendment.

The FOS was set up under the Financial Services and Markets Act 2000 (FSMA) to provide an independent dispute resolution service. It is free for those making a complaint and can require firms to pay redress up to its binding award limit of £150,000.  Only “eligible complainants” can use the FOS

The proposals centred on changing the definition of an ‘eligible complainant’ to include more small and medium‑sized enterprises (SMEs), charities and trusts, as well as personal guarantors of loans to a business they are involved in.

FCA proposals were based on “analysis that there were SMEs outside the micro‑enterprise category that, in the absence of any alternative forum for dispute resolution, would be likely to lack the resources necessary to resolve disputes with financial services firms through the legal system”.

As a result, the FCA proposed that SMEs should be able to access the FOS on the same terms as micro‑enterprises and individual consumers if they fell below all the following thresholds:

• annual turnover of £6.5m;
• annual balance sheet total of £5m; and
• headcount of 50 people.

Feedback to the consultation suggested that this approach could unintentionally exclude some SMEs that would not have the resources to protect their interests in these disputes. They saw SMEs that employ a lot of people but have relatively low turnover or assets as particularly at risk of unintentional exclusion.

The FCA agreed and has changed eligibility criteria to be below the following thresholds:

• annual turnover of £6.5m; and either
• annual balance sheet total of £5m; or
• headcount of 50 people.

So, an eligible complainant is now defined as:

(1)   a consumer; or

(2)   a micro-enterprise;

(a)   in relation to a complaint relating wholly or partly to payment services, either at the time of the conclusion of the payment service contract or at the time the complainant refers the complaint to the respondent; or

(b)   otherwise, at the time the complainant refers the complaint to the respondent; or

(3)   a charity which has an annual income of less than £6.5 million at the time the complainant refers the complaint to the respondent; or

(4)   a trustee of a trust which has a net asset value of less than £5 million at the time the complainant refers the complaint to the respondent; or

(5)   (in relation to CBTL business) a CBTL consumer; or

(6)   a small business at the time the complainant refers the complaint to the respondent; or

(7)   a guarantor.

Some respondents to the consultation also said it would take time for the FOS to be ready to handle complaints involving newly‑eligible SMEs and so disagreed with the FCA proposal for the new rules to take effect on 1 December 2018. The FCA agreed. They are publishing near‑final rules, which will give the FOS chance to consider how it will implement the new rules, including hiring any extra staff and consultants with the necessary skills and expertise needed.

The final rules are expected to be issued before the end of 2018 so that the extension of the service to SMEs can start on 1 April 2019.

Alongside the increase in access to FOS, the FCA is consulting on an increase to the level of award it can make to successful complainants.

The FCA is proposing that, on 1 April 2019, the FOS award limit of £150,000 should change to:

• £350,000 for complaints about acts or omissions by firms on or after 1 April 2019

• £160,000 for complaints about acts or omissions by firms before 1 April 2019, and which are referred to the ombudsman service after that date.

  The FCA also proposes that, from 1 April 2020 onwards, both award limits should be automatically adjusted on 1 April to ensure they keep pace with inflation, as measured by the Consumer Prices Index (CPI).

   

  This consultation closes on 21 December 2018.

   

  If you need to discuss any aspect of this newsletter, please contact us.