Changes to FOS access (3).

YOUR COMPLIANCE MATTERS:   Changes to FOS access (3).

 Relevance:                   All firms.

 Action required:           Complaints procedure update, effective 01.04.19

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

 Only “eligible complainants” can use the FOS and 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.

 So, from 01 April 2019, the FOS’s remit will extend to larger small and medium-sized companies (SMEs).

 Therefore, 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.

 Here’s a reminder of some of the definitions:

An Enterprise is any person engaged in an economic activity irrespective of legal form.

A Person is any person, including a body of persons corporate or unincorporate (e.g. a partnership).

A Micro-enterprise is an Enterprise which employs fewer than 10 Persons and has a turnover or annual balance sheet that does not exceed €2 million,

A Small Business is an Enterprise which is not a Micro-enterprise,  has an annual turnover of less than £6.5 million (or its equivalent in any other currency) and either employs fewer than 50 Persons or has a balance sheet total of less than £5 million (or its equivalent in any other currency),

A Guarantor is an individual who is not a consumer and has given a guarantee or security in respect of an obligation or liability of a Person which was a Micro-enterprise or Small Business as at the date that the guarantee or security was given.

 You should ensure that all staff are aware of these changes and that FOS information is provided to all complainants now able to access the FOS service.

 The FCA has also consulted on an increase to the level of award that the FOS can make to successful complainants. It 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 closed on 21 December 2018 but as yet we have not seen any confirmation that it is going ahead.

Indeed, we have seen a great deal of opposition to the increase, particularly suggesting that increasing the compensation limit to £350,000 would have unintended consequences, which would be detrimental to consumers. Also, it is inevitable that an increase like this would have a huge impact on the costs of professional indemnity insurance (PII).

We will keep you posted on any progress or developments in this matter. We are planning to update the complaints section of your compliance manual. This will be available prior to 01.04.19, whether or not the award limit has been revised before that date.

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