The FCA is considering raising the FOS compensation cap for small firms from the current level of £150,000.
In a discussion paper published today on how it deals with small businesses, the regulator outlines options to expand its eligibility criteria.
It says irrespective of expanding its scope, the maximum payout may need to be raised from £150,000.
In 2011, the limit was raised from £100,000 to £150,000. The Ombudsman can also recommend a firm pays out more than the cap.
The FCA says: “If larger business clients were to be given access to the ombudsman service, the current binding award limit of £150,000 might also need to be reconsidered in light of the larger sums that newly eligible businesses might borrow, deposit, insure and invest.
“It might in fact need to be increased regardless of changes to the eligibility criteria. As the Treasury select committee found in the case of interest rate hedging product mis-selling, the financial losses sustained by SMEs may exceed it substantially.”
Only individuals can be awarded compensation by the FOS, however micro businesses – defined as employing fewer than 10 people and with turnover less than €2m – count as individuals.
The regulator says while ineligible small business are a small minority of SMEs, they account for a “substantial share of the sector’s demand for financial services”.
Following the regulator’s interest rate swap misselling review, the Treasury select committee and Parliament Commission on Banking Standards recommended the FOS expand to allow more small firms to make complaints.
The deadline for responses to the discussion paper is 18 March 2016.