"We have listened carefully to the feedback we have received and believe our approach is right"
The FCA has confirmed that the maximum amount of compensation the Financial Ombudsman Service can award will increase from £150,000 to £350,000, despite industry experts warning that the changes could be detrimental to advisers, firms and consumers.
The limit will increase from the 1st of April for complaints about actions by firms on or after that date. For complaints about actions before 1 April that are referred to FOS after that date, the limit will rise to £160,000.
The FCA has also confirmed that both award limits will be automatically adjusted every year to ensure they keep pace with inflation.
The new award limit will come into force at the same time as the extension of the service to larger SMEs. These are firms with fewer than 50 employees, annual turnover of under £6.5 million and an annual balance sheet total of under £5 million. An additional 210,000 SMEs will be able to complain to the Financial Ombudsman Service.
The changes faced widespread opposition from the financial services industry when they were first announced in October 2018.
The AMI said it "strongly opposes" the increased compensation limit, arguing that the FCA has "lost sight of both its own and FOS’s purpose"to cater for cases that could be dealt with speedily and by using dispute resolution techniques.
The AMI says cases above these levels were deemed to be more appropriate for legal decisioning in courts based on contract law.
The Association added that it was "deeply concerned" over the FCA’s approach to the changes, believing it was misleading to say that respondents had “strongly supported” the extension.
Royal London said the plans will have huge "unintended consequences" for advisers and clients as it could more than double the cost of PI cover.
The mutual added that advisers may struggle to bear the extra cost of this cover leading to increased fees for clients. It also believes that PII providers may find the extra costs too much to bear leading to them exiting the market and making it harder for advisers to access appropriate levels of cover.
The SimplyBiz Group agreed that the cost of insuring against such a high claim will cause a significant increase in the cost of professional indemnity insurance and would affect the majority of firms.
It believes the inevitable result will be a "serious decline in the number of advice firms" and therefore the availability of advice to consumers.
Andrew Bailey, chief executive of the FCA, said: "Consumers and small businesses struggle with the cost and time needed to take firms to court, so it is essential they can receive fair compensation from the Financial Ombudsman Service when things go wrong.
"We have listened carefully to the feedback we have received and believe our approach is right and will bring benefits to both the consumers and micro-enterprises currently eligible for the ombudsman service and the small businesses who will become eligible in April."
Commenting today, Steve Webb, director of policy at Royal London, said: "The FCA has been forced to admit that it got its numbers wrong and that just 500 people a year might benefit from this change. But the risk is that the insurance which advisers are obliged to buy will more than double in price and could drive up to a thousand firms out of the pension transfer advice market altogether.
"There is already clear evidence that PI insurers have been hiking premiums in anticipation of this policy change. Yet the FCA is pressing on regardless. This is a shocking decision. If far more members of the public are unable to access advice then this will be counter-productive and consumers will lose out as a result."