Plans to more than double the amount of compensation UK financial services firms have to pay out to clients have come under fire from the Personal Investment Management and Financial Advice Association (Pimfa).
The trade association for investment managers and financial advisers has called for the Financial Conduct Authority (FCA) to postpone implementation of revised Financial Ombudsman Service (FOS) compensation limits.
International Adviser reported recently that the FOS will be able to force firms to pay out higher compensations of £350,000 ($462,000, €408,000) to consumers and businesses from 1 April 2019, an increase of 133% from the current limit of £150,000.
However, complaints preceding 1 April will see the limit rise to £160,000.
Pimfa said: “Following the publication of the policy statement 19/8, which increased the FOS’s compensation limit to £350,000, we have been assessing the impact with our member firms, particularly those firms who are currently seeking to renew their professional indemnity insurance (PII).
“It is clear, with less than one week to go before the rules are implemented on 1 April, that a number of insurance companies are not yet in a position to confirm whether or not they will able to offer terms reflecting the increased limit.
“Many firms currently seeking to renew their cover will not be able to obtain cover reflecting the revised FOS limit by 1 April 2019.
“The impact on the PII market was an area of key concern flagged by Pimfa in our submission to the [consultation paper].
“We are disappointed that in setting an implementation date of 1 April 2019, the FCA has failed to properly assess the impact on insurance companies and their ability to offer terms reflecting the changes in the compensation limit.
“The FCA must immediately postpone the implementation of the rules and revisit the impact of the increase in the compensation limit on the PII market.”
Opening the market
The change will come into force at the same time as the extension of the service to larger small and medium-sized enterprises.
Those are defined as firms with an annual turnover of under £6.5m, an annual balance sheet total under £5m, or fewer than 50 employees.
As a result of the extension, clients of 210,000 additional firms will be able to complain to the FOS.