The Financial Ombudsman Service – a jurisdiction that knows no bounds?
Last week many of us were working out what Jeremy Hunt's budget meant for our personal finances and wondering what was going on in the banking market. As a result a couple of developments at FOS may well have flown under the radar – (1) increase in the FOS cap and (2) a call for evidence on access to FOS for small and medium sized entities (SMEs). The changes increase the impact of FOS and could increase its scope if the definition of SMEs is changed.
The FOS Cap
For acts and omissions pre 1 April 2019, the relevant FOS cap depends on the date the complaint is referred to FOS. Ranging from £100,000 if the complaint was referred before 1 January 2012 (albeit we would be surprised if a complaint has been stuck at FOS for over a decade) to £170,000 if a complaint was referred to FOS before 1 April 2022. The cap for complaints arising from acts and omissions before 1 April 2019 will increase to £190,000 for complaints referred to FOS after 1 April 2023.
For acts and omissions on or after 1 April 2019, the relevant FOS cap again depends on when the complaint is referred to FOS. This ranges from £350,000 where the complaint was referred between 1 April 2019 and 31 March 2020, to £375,000 for complaints referred on or after 1 April 2022. That cap is now set to rise to £415,000 for complaints referred on or after 1 April 2023.
The update to the FOS Handbook was made on 13 March 2023 with little fanfare albeit a likely product of high inflation.
Eligible complainants at FOS - SMEs
SMEs can complain to FOS provided they fall within relevant criteria. There are two relevant definitions "micro-enterprise" or "small business".
The definition of "micro-enterprise" is an enterprise that employs fewer than 10 people and has a turnover or annual balance sheet that does not exceed EUR 2 million. The definition of "small business" is an enterprise that is not a micro-enterprise but has annual turnover of less than £6.5 million (or its equivalent currency) and employs fewer than 50 persons or has a balance sheet total of less than £5 million. However, when looking at the definitions consideration has to be given to any so-called partner enterprises or linked enterprises – so if a parent company holds a majority shareholding in the micro-enterprise or small business and the parent company does not meet the relevant definition then the subsidiary entity falls outside of FOS' criteria.
The last time FOS extended access to SMEs was in 2018, with rules that came into force in April 2019 and since then there has been the launch of the Business Banking Resolution Service in February 2021 which is a free service resolving disputes between SMEs too large for FOS (with a turnover up to £10 million) and which considers complaints relating to banking services albeit the service is due to close at the end of 2023.
The FCA launched on Friday a call for evidence to reconsider the current thresholds and whether they continue to meet FOS' policy objective which is to provide access to FOS to SMEs where it is likely they have insufficient resources to resolve disputes with financial services firms through the legal system.
Impact – how much further will FOS' powers stretch?
Many of us have gripes with how FOS operates its jurisdiction (whether that’s how it considers time bar, its approach to what is "fair and reasonable", complaint splitting or the application of interest), but when coupled with increases in the FOS cap and potential increases in the definition of SMEs this arguably creates more concern around FOS' jurisdiction.
The immediate impact of the change to the cap for acts and omissions pre 1 April 2019 is likely to be felt when it comes to the British Steel consumer redress scheme (given advice was provided before 1 April 2019) as customers may well find there way to FOS if advice is found to be "suitable" under the scheme or if they fall outside the scheme. Complaints referred to FOS on or after 1 April 2023 for acts and omissions before 1 April 2019 will attract the higher limit of £190,000. Whether that matters in practice for British Steel complaints (or other final salary transfer complaints) is going to be dependent on the new redress methodology set to come into force on 1 April 2023. Although the monetary compensation for final salary transfers has fallen given the increase in gilt yields following Liz Truss' September 2022 budget, the problems in the banking industry may well result in a reduction in gilt yields as investors take flight to safer government bonds.
We are starting to see complaints with respect to acts and omissions post 1 April 2019 (when the cap was raised first to £350,000) as there was always going to be a time lag for complaints to come through. The appetite to challenge FOS given the increased cap is likely to itself increase and there is some concern over FOS' approach to the new consumer duty to be introduced in July 2023 which will attract the increased cap of £415,000 (as the consumer duty is not intended to be retrospective).
Then there is the potential to extend the definition of SMEs. No other profession has to contend with an ombudsman quite like FOS and the extension of its jurisdiction will no doubt lead to calls to consider whether its jurisdiction is simply going too far.