Compensation Limit Up to 350000

An increase to the Financial Ombudsman Service (FOS) compensation limit has been announced by the Financial Conduct Authority (FCA) and will rise from £150,000 to £350,000.  The limit will increase from 1 April 2019 for any complaints and actions taken against financial services companies.

Any complaints dated before the 1 April but received after that date, the compensation claims limit will rise to £160,000.  The FCA has also suggested that compensation limits are due to be changed yearly to keep in line with inflation.

The FCA received 130 responses from financial advisers, smaller independent advisers and insurers that did not agree with the increase as it could have an impact on their professional indemnity insurance (PII) premiums.  The finance industry is extremely concerned and expects increases in professional indemnity insurance of between 200% and 500% (as forecast by insurers themselves) but staggeringly, the FCA suggests premiums will increase by only 140% (head in the sand?).

The ability to claim via the FOS is also being extended to more larger, small and medium-sized enterprises (SMEs), these are companies with a yearly turnover under £6.5 million and a yearly balance sheet of under £5 million with fewer than 50 employees, will be actioned on the same day, 1 April 2019.   An additional 210,000 SME’s will now have the ability to submit complaints, claims and compensation requests.

Comment

Watch this space!  Many financial advisers will not be able to afford such a dramatic increase in premiums, which already average out at around £10,000 pa per adviser.  For just a small practice of say 4 financial advisers, currently paying £40,000 pa in PII, this could increase to lower estimates of £56,000 and higher estimates of between £80,000 and £200,000 pa.  Expect the costs for financial advice to increase dramatically.  Expect financial advisers to move away from offering advice in higher risk or complex areas.  Expect the number of financial advisers closing to increase dramatically.  Is the FOS and the FCA trying to ‘kill’ the financial advisory market?