News & Views

The increase in the FOS limit is the tipping point

Regulatory comment for Financial Advisers and Paraplanners

2 Apr 2019

The increase in the FOS limit is the tipping point

Happy Anniversary Channel 4! Their Dispatches programme parachuted an undercover reporter into FOS this time last year and discovered that not only were FOS staff incapable of understanding products and had to resort to Google to divine their design, but also the same staff were refusing the cases of some bank clients to avoid complex conversations with bank compliance departments who clearly were more competent than them.

In the commercial world, had a secret shopper reported a similar thing to a firm, the management would have been admonished, demoted or sacked and that team would have been taken off the work until they were properly trained.

But, in the surreal world of public service and regulation, failure is rewarded by promotion, improved budgets or an extension of your powers. So, within 13 months of the programme airing, the FOS is to expand its upper limit from an already eye-watering £150,000 to a staggering and completely unreasonable £350,000.

The precursor to this move was the consultative paper CP18/31 which notionally requested feedback. Initially, I wasn’t overly concerned. But, having done this job for so many years, I did delve deeper. In amongst all those questions that required you to second guess the statistics that only the FOS has, there were a number asking you how much more power you would like to grant the FOS. The counter question about whether you consider the level of power the FOS currently has to be too much, was not present.

I haven’t seen all the responses, but I know that Libertatem and the PI insurers told them not to go ahead with the level hike. 

Indeed, in our submission, Libertatem suggested that the limit should be cut from £150,000 to £25,000. Our reason was that – post the Dispatches programme – £25,000 was the most we felt that FOS was competent to adjudicate over.

And there are many more issues than just the competency of FOS and its unhappy workforce to consider.

Any other commercial claim would have a small claims court limit of £10,000.  So why is advice so different? Any commercial claim also has a long stop of 15 years and is adjudicated on proper rules of evidence – so again why is advice so different? And finally, in the commercial world the defendant has a right of appeal.  But, under the FOS, advisers don’t. So we would like to know why the customers of advice have a totally different process from the customers of any other commercial activity?

The impact of this decision is going to be serious and long standing, and advisers need to wake up and do something about this.

I have had a large number of meetings, calls and emails concerning this in recent days. Calls to PI Insurers have revealed that the number of underwriting firms willing to accept adviser PI market contracts is shrinking, so the price of cover is bound to increase. Those that are still there are apoplectic about this change in the limit.

The result is likely to be both an increased premium and  a two-tier system. PI cover has historically covered every case from the excess to the limit of £150,000. Now, we will see PI Insurers capping their cover at either £150,000 or £160,000 and the adviser will have to pay a second excess for anything above. So, you may have an initial excess of £20,000 to pay, but will be hit for the rest should the FOS fine you the full amount.

Plus there is another void being created. FOS is going to apply this new limit to any claims made after April 1st. Insurers claim they will apply this to any claim on advice given after 1st April. The world is silent on what happens to claims made after April 1st on advice given before that date.  My suspicion is that advice given prior to but brought into question after the April 1st deadline will attract the full force of the new upper limit.

There is a major risk for advisers in all of this. Firstly, advisers will be expected to fund a higher level of claim. Secondly PPI is coming to an end and the ambulance chasers will be seeking new areas of profit. Thirdly, a larger number of advisers will find themselves uninsured. This is not only dangerous for their wealth but also will encourage the regulator to demand ever higher levels of capital adequacy, forcing a number of advice firms out of the market altogether.

I had a good meeting with the FCA last week, initially to discuss the Heath Report 3. But it wasn't long before this issue came up. I made the point that advisers are uniquely exposed to losing personal wealth.

It was nice to see a much more positive attitude from the FCA. When the 2ndreport came out three years ago, the FCA attempted to pretend both it and Libertatem did not exist. I am really pleased that we are now working together and they are genuinely listening to our concerns.

We are also seeking to meet three other departments of government: The Treasury of course, but also Education and Small Business.

Today (Thursday 28 March) I am in Westminster, meeting with MPs and particularly those interested in Connaught. Getting their attention with the all-consuming Brexit is a challenge but not impossible. The Connaught debacle has proved to be invaluable in getting us in front of the Treasury Select Committee and others.

But all this activity is pointless without support. Last week, a breakfast meeting with a major adviser distributor resulted in a pledge to provide support, both practical and financial. But we need far more of this blogs readers to do more than just read and nod.

Act, Join, Fund – we need your help and with it we may start to overturn some of these abuses of power. If you want to get involved, join Libertatem by clicking on the link below.  Membership starts at just £20 per month.  If you would like to donate, you can do so via Paypal –

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