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Adviser trade body sets up group to fight FOS limit increase

Adviser trade body Libertatem is looking to put together a “steering committee” of industry professionals to take their challenges over the increase in the Financial Ombudsman Service’s compensation limit to the FCA.

Libertatem says a meeting between itself and the FOS has been confirmed, and it is now seeking meetings with the Treasury and FCA in light of the decision to increase the maximum award the FOS can pay out from £150,000 to £350,000 from April.

The trade body says it wants to advise the regulator on the “true cost of these changes”.

In its response to the FCA’s consultation on the move, Libertatem argued that the FOS limit should be reduced to £25,000.

Libertatem director general Garry Heath says: “The regulator’s belief that the PI insurer will pick up the bill is, quite frankly, wrong. It is our understanding from a leading PI insurer in the UK market that they will only cover £160,000 of any FOS decision, with the adviser being expected to cover the excess and the rest of any amount payable.

“In the light of these issues it is almost beyond parody that the FCA has sought higher limits for the ailing FOS.”

Heath quotes one PI insurer as saying that the FOS “bend over backwards to find for the claimant”.

FOS statistics show only a third of claims go in favour of the consumer.

Heath argues that there is no right to appeal FOS decisions.

Firms can contest an initial decision from a FOS adjudicator before it is passed to an ombudsman ruling. They also are able to challenge decisions with FOS’ independent assessor, or launch a judicial review.



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There are 8 comments at the moment, we would love to hear your opinion too.

  1. It is not true that firms can challenge decisions at the independent assessor.

    They can only challenge whether the proper process has been followed.

  2. It might interest you to know that we may be one of the first firms who’ve come across this problem as our PI renews shortly after the increase in FOS limits from £150k to £350k.

    Whilst our PI premium rate has gone DOWN as we don’t do DB transfers and are a very low risk firm, the PI insurers aren’t offering terms for £350k of cover, just £150k which means the day we renew (and perhaps all firms actually as from 1st April as their existing cover may not meet the £350k limit) we will be in breach of our capital adequacy requirements as whilst they are currently only £20k (we usually have between £40 and £50k), with no PI to cover the difference between £150k and £350k, in theory we have to increase our capital adequacy from £20k, to £220k and funnily enough, I don’t have a spare £200k in my back pocket I can get in to the business account in under 2 weeks!

    From my PI broker

    There are also additional changes to the policy this year which you need to be aware of:-

    Insurers are endorsing the Policy this year with a new “Property Funds Exclusion” on the basis that you have ticked ‘Yes’ in response to section 2 question 6 of this year’s renewal proposal form. They are also including an additional new endorsement excluding the advice to transfer from a Defined Benefit Pension Scheme. I realise you do not advise on these, but because they are such a hot topic, insurers are tightening cover to ensure that should a non-disclosure arise, there are no arguments over indemnity.

    You will further appreciate the Ombudsman clause in the wording (5.4.2) limits about what insurers will pay in respect of any recommendation made by the Ombudsman to £150,000. I am sure you will have heard about the recent Policy Statement from the FCA which confirms that the FOS limit will be increasing to £350,000 with effect from 1st April 2019. Liberty are currently considering their position in this regards to this internally but there is no guarantee that they will be increasing the monetary figure in the clause to £350,000. As it currently stands therefore, this Policy would be non-compliant from 1st April 2019 but until all insurers have further clarity from the FOS on how they are going to adjudicate on/investigate higher value claims and what the landscape is going to look like, insurers are unable to make a properly informed decision on the way forward and we have what we have. This is the only current available option although I have requested the specialist Pii broking team at XXX to continue to search for alternatives. If any improved terms come in prior to the renewal date we will obviously communicate these to you as soon as we are made aware.

    • In a rather long-winded way, you seem to be saying that the acid test will be whether insurers increase their pay out limit from £150K to £350K per claim. We cannot at this stage know how many won’t or by how much premiums will increase for firms for whom their insurers do, but those who cannot obtain the extra cover will be under-insured by up to £200K per claim. Just one claim that goes against them will break them and their liabilities will then, as usual, pass to the rest of us by way of the FSCS.

      What action will the FCA take against (the possibly many) firms who (if asked) have to report that they either cannot get or afford PII cover of up to £350K per claim? Order them to shut shop? Then again, Andrew Bailey has said that the FCA isn’t particularly bothered about firms not having comprehensive PII cover, not least in respect of UCIS and such like (which seem to be the main cause of the endless succession of interim FSCS levies), so one can only guess all this is heading. The outlook isn’t good, though.

  3. There is also a mismatch on what the PI insurers are willing to cover and when they are willing to cover it.

    PI insurers are saying they ‘may’ offer cover up to £150k for ADVICE given after April 1st 2019.

    But FOS will seek to use the limit from April 1st 2019 on cases that have been adjudicated after that date, not when the advice was actually given.

  4. A bunch of chancers.

    The obvious and fair remedy is to remove any limit and award full damages and costs to successful claimants. Anything less means legalising fraud.

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