The new award limit was confirmed by the Financial Conduct Authority (FCA) (55-page / 916KB PDF) late last week after the regulator had previously carried out a consultation on the topic. The compensation can be set by the Financial Ombudsman Service (FOS).
The FOS is an independent body which deals with complaints by the customers of financial services companies which cannot be resolved through that company's own procedures. It can require firms to compensate their customers so that they are back in the financial position that they would have been in had the problem that led to the complaint not occurred. Currently, the maximum amount that a firm can be required to pay by the FOS is £150,000. The FOS may recommend a higher value award, but it cannot compel a firm to pay anything above the cap.
The FCA said the new £350,000 limit will apply to complaints about acts or omissions by firms which took place on or after 1 April 2019. A £160,000 limit will apply to complaints raised before then but which do not get referred to the FOS until after that date.
From next year the FOS award limits will rise in line with inflation as measured by the Consumer Prices Index (CPI), the FCA said.
"Our changes to the ombudsman service’s award limit will ensure more complainants receive fair compensation when the ombudsman service upholds their complaint against a firm," the FCA said. "We estimate there could be up to 500 complaints upheld by the ombudsman service each year where the amount of compensation the service determines is due is above the previous award limit of £150,000."
"While the number of these ‘high value’ complaints is relatively small, there was a risk of very significant financial harm to complainants if they did not receive the full amount of compensation the ombudsman service considers due," it said.
Contentious financial regulation expert Jonathan Cavill of Pinsent Masons, the law firm behind Out-Law.com, said the FCA's decision to raise the award limit stems from its objective to ensure that markets operate well and that customers are properly protected.
"The new £350,000 limit is a material increase which firms will not be able to ignore," Cavill said. "The obvious upshot is the increased redress which may be awarded from a FOS decision. However, the more subtle consequence is the impact the increased limit will have on the way firms conduct themselves, both generally and in response to complaints."
"For example, some firms may feel that their existing business processes leave them exposed to a level of redress which they are not willing to accept. Firms may also be more willing to deal with complaints when they are first made to the firm, rather than run the FOS' 'fair and reasonable' gauntlet," he said.
"We have already seen firms taking a proactive approach to addressing internal complaints systems as well as ongoing redress exercises for historic problems. Some of these have also resulted in changes to customer engagement at the point of complaint," Cavill said.