The courts have ruled FOS decisions are final - meaning claimants cannot then take their cases to the courts. But what are the consequences for financial advisers?
Last month, when the Court of Appeal decided to reverse an earlier judgement and made Financial Ombudsman Service (FOS) decisions final, the advice industry collectively sighed with relief.
After all, the FOS has an awards ceiling of £150,000, meaning if clients want to take advantage of the free and quick service, they cannot be awarded more than that amount – and that's final.
Most industry figures are hoping the decision represents little more than a return to the status quo, the way compensation was dealt with before December 2012, when a judge first decided an FOS award could be used by a claimant as a fighting fund to bring further court proceedings in the same case.
"The recent appeal decision is putting right what most people thought was a wrong decision in the first place," said Bovill consultant David Aylward.
Association of Professional Financial Advisers senior policy adviser Clare Griffiths agreed: "As far as we are concerned, that was the way everybody understood the system worked."
But lawyers have pointed out there is more to the case than first meets the eye. While confirming what industry players were waiting to hear, the case shed light at the workings of the FOS and some of the judges hinted they were concerned the Ombudsman is pushing its jurisdictional boundaries.
Advisers have long been concerned about the FOS 'making claims grow' and seemingly contradicting regulatory guidance, said Griffiths.
"There are concerns that the Ombudsman does its own thing and even if an adviser may feel they have followed the rules and the regulations, that doesn't necessarily mean the Ombudsman won't look at it differently," she said.
Where to draw the line
Partner at City law firm Reynolds Porter Chamberlain Robbie Constance now pointed out that the FOS is increasingly using new tactics such as claims splitting to help high value cases make their way around the £150,000 ceiling.
He said: "The FOS does seem to be pursuing a consumer protectionist agenda many would say beyond what is independent and its true purpose on the statute.
"Anecdotally, it is our sense that more and more people assisted by claims management companies (CMC) are seeing the FOS as an opportunity to obtain compensation for something that they might otherwise have thought better of taking to court.
"There is no published policy about how these things happen. But anecdotally, there are numerous examples of cases where the FOS team will proactively look to sever complaints, they will suggest it to complainants, invite them to make further complaints or will just get on and create new ones themselves.
"Where the line should be drawn between an investigative remit and ensuring a level playing field by assisting a complainant and proactively pursuing a complainant's interest I don't know. But on the side of the firms, I feel that line does get crossed quite often."
Adam Edwards, solicitor at rival law firm Browne Jacobson, agreed the FOS had a consumer-driven agenda but said he didn't feel it was pushing its boundaries: "Actually, the FOS seems to be inclined to merge together different complaints.
"I'd be very surprised if the FOS takes that step and actively said to people [they] would be better served by doing X,Y,Z because quite often the actual quantum of loss isn't known until very late on in the FOS process."
Aylward suggested the new clarity around compensation rules would deter high value, complex claims from coming to the FOS in the first place.
Although such claims are rare – about 87 were worth more than £150,000 in the last year – the FOS wasn't set up to deal with them at all, he said.
However, he added he was concerned that CMCs, which were historically focused on high volume small claims, may change their tactics and start to look into ways of splitting claims before bringing them to the FOS.
"It wouldn't surprise me if CMCs still did try to use the FOS but conscious of the fact there is a £150,000 limit.
"I think the CMCs will probably try and look for reasons to split cases in order to make higher compensation levels available through different cases. It wouldn't surprise me if that did lead to a slight change of tactic," he said.
| View from the FOS
The FOS considers itself to be in the position it was in pre-December 2012 when the High Court first set out that consumers could pursue their case in the courts after an ombudsman decision.
While it said it did split complaints where it thought there were several separate elements, such as an adviser and a fund, the FOS would advise people to go to the courts if the sums were above £150,000. It would also see through complainants or CMCs trying to split cases that weren't appropriate, it said.
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