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The Financial Services Authority's (FSA) decision to up the redress limit at the Financial Ombudsman Service (FOS) will lead to more judicial reviews brought by angry firms, and harsher defending by the regulator, a City law firm has warned.
The upper limit for FOS awards will be increased to £150,000 from £100,000 on 1 January 2012.
Law firm Reynolds Porter Chamberlain (RPC) said the move will push firms "increasingly upset at the perceived injustices of working under the FOS' jurisdiction" to press for court review of the Ombudsman's decisions.
Robbie Constance, senior associate at RPC, said: "There may be angry firms more inclined to have a pop through judicial review which is the only way they are able to but I don't think that will mean they have any greater prospects of success.
"The problem is judicial review is expensive and a notoriously high hurdle to clear."
Constance added the FOS and the FSA are likely to be "much buoyed" by the recent High Court decision to uphold a ruling against the British Bankers' Association (BBA) over payment protection insurance mis-selling.
Industry calls for an independent appeals process were dismissed as "unnecessary" by the FSA in a recent consultation paper.
Constance added: "We are likely to have more judicial reviews and there is certainly no appetite from the side of the regulators for any alternative process.
"I think the BBA judgement will mean they feel pretty emboldened when they do face judicial review."
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Not necessarily about the new FOS limit
FOS issued a detailed consultation document last year with all the supporting data for this change. According to the consultation paper and their recent review, FOS dealt with over 200,000 cases last year, and their estimate of the number that would exceed £100k is 0.1% (or thereabouts). Their point, quite rightly, is it won't make a lot of difference to the industry, but it will make a big difference to those few hundred investors who have been mis-sold products in excess of the current limit which has not changed in 10 years and has lost around 30% of its real value. Will this cause more JRs? Possibly. But the current case where Meteor are seeking permission for a JR against FOS illustrates that it is not necessarily about the award limit. That case is about a single claim for £15k. Perhaps their worry is about the prospect of hundreds of similar claims for similar amounts.
Posted by: Missold Investor
A fair approach
The problem here is that FOS is generally mistrusted by many of those on who it will potentially pass judgement. Without any form of stuctured appeal process [and a judicial review is not such a process]and a lack of due legal process in FOS's adjudications, firms will always feel that they are discriminated against. This is heightened by the fact that FOS rulings are binding on firms but not on the client. The FSA's arbitary increase in the level of compensation against this backdrop unfortunately just fans the flames of what is perceived by many to be an unjust and unequal body.
Posted by: Duncan Carter
FOS Limit
i am an IFA and feel its simple really!!! treat customers fairly and have a robust sales process compehensive MI and you should never have to fear the regulator of the FOS. stray away from these basic priciples at your peril.
Posted by: Darren
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FOS rise
It would appear to fly in the face of reason not to have some form of independent review of FOS decisions that increasing appear to unilaterally absolve clients of any responsibility what so ever and give credit to the frailties of clients’ memories.
Posted by: Karl Nadin