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FCA letter addresses PI insurers’ concerns over higher FOS limit

The FCA has written to professional indemnity insurers to explain how high value compensation awards might look since the ombudsman increased the award limit to £350,000.

The regulator says in the letter, dated 17 May, it thinks the information will “help address some of the issues or questions stakeholders have raise regarding the ombudsman service approach to complaints.”

The Financial Ombudsman Service increased the ceiling on compensation claims from £150,000 to £350,000 on 1 April.

The change has been met with resistance from some PI insurers. Liberty Speciality Markets previously said it would meet the higher FOS limit, but amended cover will not apply to any defined benefit pension transfers transacted after the 1 April- these will need to be underwritten on an individual basis.

Also, adviser trade body Libertatem has put together a “steering committee” of industry professionals to take their challenges over the FOS limit increase to the FCA.

The details of the projected awards figures from the FCA, based on 195 complaints per year, shows it expects the total value of redress payments for claims between £150,000 and £350,000 to be £50.82m annually.

Of that, £11.32m is expected to relate specifically to complaints against IFAs.

Factoring in £70m worth of claims the FCA says may switch from the courts to the ombudsman service under the new award limit, the total number of claims per year could rise to 488 and the total estimated value of redress goes up to £120.82m.

Again, looking solely at complaints against IFAs the redress figure comes down to £37.36m.

However, the FCA says its figures assume all complaints are subject to the £350,000 limit but points out the new limit only applies to complaints about acts or omissions from 1 April 2019 onwards. Accounting for the lag between the act or omission and the complaint, the figures will most likely look much lower for the next few years, the letter states.

FCA to grant firms PI flexibility after FOS limit increase

The letter also includes details of the additional governance arrangements FOS has in place for high value complaints. FOS will ensure, “all cases where the potential award for compensation is more than £150,000 are reported to the ombudsman’s legal team and its senior manager.”

The FCA also says: “The ombudsman service will shortly be publishing examples to help stakeholders understand how it has determined in the past that a court would be better placed to deal with a particular complaint.”

Personal Finance Society chief executive Keith Richards told members in a blog post the letter was, “a timely communication from FCA and will hopefully go some way to help mitigate some of the current concerns of PI insurers.”

According to FOS data there were 340,000 complaints to the ombudsman service in 2017/18. Richards says the FCA’s suggestion in the letter, “was that only a small minority of ombudsman awards would be likely to exceed the previous awards limit.”


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There are 13 comments at the moment, we would love to hear your opinion too.

  1. The FOS should be a smalls claims body, with a limit of £50,000.

    I attended a PFS CPD presentation by Solicitors acting for DB Transfer claims.

    They stated that when faced with a good advisers file, if they had to go to Court, they would in most cases advise against doing so. The file from a good adviser normally demonstrates that the clients understood the risk, good research, cash flow models and personalized Suitability Letters.

    They also stated that the FOS would most likely uphold in most cases against these files as they are not subject to legal requirements or challenge and would normally find against any DB Transfer. This cannot be right. They also stated that to challenge the FOS decision would cost an adviser around £1,000,000.

    We are told those wishing to complain to the FOS are not charged as payment might bar them from complaining, payment is seen as an obstacle. I suggest a £1,000,000 legal bill to challenge the FOS on their outcomes is clearly to their advantage, unfair and a purpose built obstacle to prevent challenge from the industry, especially advisers.

    The FOS should either have to apply the rule of law, or be reduced to a small claims facility.

    • It costs £154 to file a challenge to a FOS decision in the High Court, using an N461 Claim form.

      • Exactly @cpalmer, how incisvive. Who needs solicitors, barristers, expertise, administration, time, and commitment – these are largely irrelevant in the overall scheme of things. As for the resulting costs if you lose, well that’s just for the faint-hearted.

        Challenging the FOS is as simple as Brexit on WTO rules to those in the know… 😉

  2. Julian Stevens 5th June 2019 at 2:37 pm

    Acts or omissions from 1 April 2019 ~ does that means acts or omissions committed after April 2019 or earlier acts or omissions complained about after April 2019?

    That aside, PI insurers’ main area of concern appears to be that if a complaint based on a demand for compensation of, say, £350,000 was rejected but then referred to the FOS, an uphold verdict could result in an order to pay no more than £150,000 but now it’ll be the full £350,000.

    Knowing this, insurers had an incentive to reject any really big claim on the grounds that their liability would be capped at £150,000.

    Have I got that right?

    • The change is that complaints about events that happened before 1/4/2019 are capped at £160,000. Those that happened after are at £350,000.

      So if you made a rubbish recommendation on 31 March when the claim later comes in it will be capped at £160K.

      However, the limits will increase in the future in line with CPI.

  3. Barney Cooper 5th June 2019 at 4:12 pm

    What is so bad about paying full 100% compensation to clients who have been the victims of advisers poor/bad/lousy advice ?

    • I agree with you Barney, but first we need to be subject to English law not some quasi quango like the FOS, also the debacle that is PI and FSCS, needs sorting, we are double insuring and stuck in a position, that the pollutants walk away scott free whilst the end liabilities are dumped on clients ….

  4. Only acts or omissions after 1 April 2019 are subject to the higher limit. Complaints about older advice will be subject to the lower limit which is £160,000 & index linked.

  5. So, the message from the FCA to PI insurers is “there’s nothing to see here; trust us, it will be fine”.

    So the question is, just how gullible are insurers?

    • John Stirling 6th June 2019 at 7:44 am

      Insurers gullibility or otherwise is irrelevant. The claims will not all be in one insurance period. If claims are bad they will leave the market.

      The current furore is about trying to limit the impact, so if chickens come home to roost the roost doesn’t close its doors.

      The fca communication is welcome, but several months after the rules came in it is scarcely timely. Concerns have been expressed about this change for a long time.

      I am also somewhat horrified at the lack of management information about the time lag between advice and complaining, so instead of data the high value claims will ‘probably’ be lower for a few years.

  6. Whittington Dick 11th June 2019 at 10:57 am

    Whilst there are legitimate complaints that should be correctly addressed, there are also ambulance chasers encouraging bogus complaints because “it’s free and you might get some compensation”, just because you lost some money on your investment (we know there’s more to it, but that is how it is marketed), as is broadcast daily on radio, TV and the internet – i.e. what have people got to lose?
    This encourages high levels of bogus complaints that FOS is, I.M.H.O., ill-equipped to deal with and, as FOS has a general mindset of defaulting in favour of the complainant wherever possible to do so if there is the faintest chink of a chance (I’ve seen where there have been legions of evidence that what an advisory firm did was all in order, but saw all that squeegeed of the table in its entirety due to just one small procedural error – hey presto, KIRCHING! The guy was so disgusted and distressed by the whole affair, he called it a day and retired 4 years early.
    I agree that we should be relying on existing UK Law rather than self-governing – if well intended – government quango’s; the road to hell if paved with good indentations…

  7. Whittington Dick 11th June 2019 at 10:58 am

    …that’s intentions!

  8. Whittington Dick 11th June 2019 at 10:58 am

    … though indentations may well be more apt!

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