"The inevitable result will be a serious decline in the number of advice firms and therefore the availability of advice to consumers. "
The SimplyBiz Group has warned that proposals to increase the Financial Ombudsman Service's compensation limit from £150,000 to £350,000 "will be detrimental to the advice market, firms and consumers".
In its response to the FCA, the Group said 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.
SimplyBiz also questioned whether FOS personnel have 'sufficient knowledge and expertise' to deal with these larger, and potentially more complex, claims.
The Group added: "It is wholly inappropriate for a FOS adjudicator or ombudsman to rule on such redress amounts, especially where the outcome of their decisions are subjective. It is neither fair nor reasonable for either party to be held by such a decision. The amount should remain at its existing level and it must remain for the courts to act as the adjudicator for amounts above this level."
Ken Davy, chairman of The SimplyBiz Group, commented: “The FOS is a valuable resource for individuals who may have limited means as a low cost dispute resolution service. The SimplyBiz Group fully supports its existence, and the role that it plays in settling disputes. It should be noted, however, that the current FOS limit of £150,000 is significantly greater than the £85,000 compensation available to the consumer in the event of a banking failure, and I believe strongly that the current maximum compensation level of £150,000 should remain unchanged.
“The potential for a high value claim to hit an individual business, and the cost of insuring against such a claim, is likely to be prohibitive for the majority of firms. The inevitable result will be a serious decline in the number of advice firms and therefore the availability of advice to consumers. The impact of a higher limit will be highly damaging to the advice market and significantly increase the cost of PII whilst doing nothing to deter the reckless or the criminal advisers or firms from that activity.
“Our discussions with PI insurers indicate that raising the compensation limit is likely to cause further tightening in an already difficult market, with higher premiums, increased excesses on contracts and an unwillingness for insurers to take on further risk. We anticipate that the number of PI insurers will be further reduced and that there will be a dearth of new insurers. None of which will be beneficial to consumers or consumer outcomes.
“I disagree with the principles at the core of this proposal, and firmly believe that it will be detrimental to the advice market, firms and consumers.”