The Financial Conduct Authority has scrapped a proposal which would have seen the maximum amount of compensation for financial loss capped at £10,000 in terms of regulatory failings.
In an update on a revised scheme for those who have complaints about the regulators, the FCA, along with the Prudential Regulation Authority and the Bank of England, have removed a proposal that no compensatory payment relating to a financial loss will exceed £10,000, save in exceptional circumstances.
They also confirmed they will consider making a discretionary payment in recognition of financial loss if they have made a clear and significant error, and they are the sole or primary cause of that financial loss.
As part of the revised scheme, regulators increased the levels of discretionary compensatory payments for non-financial loss and provided more clarity on eligibility.
The appropriateness of these levels will be reviewed every two years and the regulators believe these changes balance the statutory immunity of the regulators provided by Parliament against the need to make compensatory payments when at fault.
The regulators said the revised scheme provides clarity around what people can expect when they complain, making it transparent and user-friendly.
The new scheme will apply from November 1, 2023 and complaints made prior to this date will be considered under the existing scheme.
Compensatory payment levels
The regulator said if it decides that a compensatory payment is justified, it will use the payment levels below to help to decide the appropriate amount.
When deciding the level of compensation in these circumstances, it will consider a number of factors to calculate the relevant amount.
These include:
- The seriousness, nature and duration of the regulators’ failing(s) and the consequences for the complainant;
- The amount of the complainant’s evidenced and foreseeable financial loss;
- The complainant’s individual circumstances; and
- The extent to which the issue, which has resulted in the complaint, is within the regulatory remit.
Level | Range | Impact |
1 | Up to £100 | Your complaint may fall into this category if we consider that you have experienced a relatively low level of distress or inconvenience as a result of our actions or inactions. This might typically arise from a one-off incident or occurrence such as a small administrative error, or where the impact on you is of short duration. Avoidable complaint handling delays of up to 10 months will fall into this category |
2 | £101-£500 | Your complaint may fall into this category if we consider that you have experienced a high level of distress or inconvenience as a result of our actions or inactions. This might typically arise from a series of relatively significant failures in our processes, or an unreasonable and prolonged delay on our part, where the impact on you was of a lengthy duration. |
3 | £501 - £1,000 | Your complaint may fall into this category if we consider that you have experienced a high level of distress or inconvenience as a result of our actions or inactions. This might typically arise from a series of relatively significant failures in our processes, or an unreasonable and prolonged delay on our part, where the impact on you was of a lengthy duration. |
4 | £1,001 - £2,500 | Your complaint may fall into this category if we consider that you have experienced a very high level of distress or inconvenience as a result of our actions or inactions. This might typically arise from a major failure in our processes or an unreasonable, prolonged and continuing delay on our part, where the impact on you was of a very lengthy duration with lasting effects. |
5 | Over £2,500 | Your complaint may fall into this category if there are exceptional circumstances, such as where our failings or the consequences for you are unusually severe. |
While the approach to compensatory payments has been made clearer, in practice it is expected payments made under the scheme will continue to be modest.
The regulators said the complaints scheme is not an alternative route to consumer redress for the actions or inactions of firms.
Consumers have access to recourse through the firm, and redress may be available through the Financial Ombudsman Service or the Financial Services Compensation Scheme.
Following a 62-page consultation paper, published in 2020, the regulators looked to see how to change the complaints scheme so that it becomes more accessible to its main users - consumers and small businesses - as well as others.
The paper set out what additional information the regulators will include to clarify their position on voluntary (ex-gratia) compensation payments.
Under the scheme, regulators are able to make compensation payments either as an acknowledgment of regulatory shortcomings or of the fact that the complainant has suffered distress or inconvenience or financial loss.
But these are often small payments as the scheme is not designed to deal with complex issues and the regulators are funded by fees paid by firms and therefore “the costs will ultimately fall on the firms”.
sonia.rach@ft.com
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