FOS jurisdiction and DISP rules: how ombudsman decisions shape IFA PII exposure

~5 min read

Reviewed by Matthew Bartlett, Director · Last reviewed 2026-07-06

Most IFA professional indemnity claims are not decided in a court. They are decided by the Financial Ombudsman Service. The FCA Dispute Resolution: Complaints sourcebook (DISP) requires FCA-authorised firms to operate a complaints procedure with defined time limits, gives eligible complainants a right of referral to FOS if they are dissatisfied with the firm's final response, and gives FOS the power to make binding awards. The FOS jurisdiction and the DISP framework together shape the PII exposure of every IFA firm — the volume of claims, the timing of claim reporting, the size of individual awards, and the market's underwriting appetite all trace back to how FOS handles complaints. This entry sets out the framework, the award limit that materially affects PI sizing, and the practical points for IFA firms and their PII placement.

The DISP framework

Firms authorised by the FCA must operate a complaints procedure that meets DISP 1.6. Complaints must be acknowledged within five business days and receive a final response within eight weeks (DISP 1.6.1R and 1.6.2R). Where the firm cannot provide a final response within eight weeks, it must issue a holding response advising the complainant of their right to refer the complaint to FOS. Records must be kept for three years (DISP 1.9.1R). Firms must submit the DISP 1 Annex 1R return twice yearly summarising complaint volumes and outcomes.

Who can refer

An eligible complainant is defined by DISP 2.7. It includes consumers, most micro-enterprises (up to €2 million turnover and 10 employees), small businesses (up to £6.5 million turnover, 50 employees and £5 million balance sheet under the SME jurisdiction), charities with income under £6.5 million, and trustees of trusts with net assets under £5 million. The scope was materially widened in 2019 to include SMEs — a change that increased the size and complexity of the average IFA claim. Ineligibility of the complainant is a defence, but the eligibility test is broad enough that most IFA claims fall within FOS jurisdiction.

The award limit

FOS can make binding awards up to the statutory limit. The limit is indexed and stood at £430,000 for complaints referred to FOS on or after 1 April 2025 (increased from £415,000 the prior year, and £355,000 before an April 2019 uplift). Awards above the limit can be recommended by FOS but are not binding on the firm — in practice, firms usually pay the recommendation to avoid reputational damage and potential civil litigation.

The £430,000 figure matters materially for IFA PII sizing. Individual FOS complaints regularly land in the £150,000 to £430,000 range on complex advice — pension transfers, structured product recommendations, inheritance tax planning gone wrong. A single adviser handling 200-300 client relationships can conceivably generate three or four FOS claims in a policy year in an adverse scenario. The each-and-every limit and the aggregate limit on an IFA PII policy need to be sized against that reality.

The DB transfer overlay

The 2018-2020 wave of British Steel Pension Scheme (BSPS) DB transfer complaints was decided almost entirely at FOS, and the awards routinely reached the then-limit. That experience shaped the current PII market for IFAs with DB transfer permissions — insurers price aggressively for firms with material DB transfer history and, in some cases, decline the risk outright. The details sit in the dedicated entry on DB transfer PII exposure.

Time limits

DISP 2.8 imposes a six-year time limit on referral to FOS from the event complained of, or three years from the date the complainant knew or ought to have known there was cause for complaint — the "date of knowledge" test. This is a longer window than the six-year Limitation Act 1980 primary limitation for contract claims, because the "date of knowledge" element can extend the window materially. IFAs who ceased trading five years ago can still face FOS referrals on the strength of a "date of knowledge" argument.

The extended time window has direct implications for run-off cover. An IFA winding down must maintain PII on a run-off basis to cover the residual complaint window — six years is a conservative floor and, in practice, longer periods are frequently recommended for firms with DB transfer, pension review or complex advice back-books.

How FOS decides

FOS applies "fair and reasonable" as its decision test, not strict application of legal precedent (DISP 3.6). That standard has proved consequential in practice: a claim that might not succeed on strict contract-law grounds can still result in a FOS award if the ombudsman considers the outcome unfair. The practical effect for IFAs is that the "we followed the process" defence is not always sufficient; the ombudsman looks at the overall outcome for the client. Advisers whose files are meticulous on process but light on outcome-focused explanation can lose at FOS on fair-and-reasonable grounds.

Practical points for placement

Three points recur in IFA PII placement. First, the aggregate limit matters — an IFA firm with 500 clients cannot rely on a policy with a low aggregate limit if a systemic advice issue generates multiple FOS complaints in a single policy year. Second, defence costs should be examined — FOS complaint handling generates costs even where the firm ultimately wins, and cover for defence costs in addition to the limit is preferable. Third, the definition of "claim" should include FOS complaints as well as civil claims — most wordings do, but any wording that limits cover to "civil actions" or "court proceedings" would leave a gap.

Worked example

Illustrative only. A three-adviser IFA firm receives three FOS complaints in one policy year, each arising from a common advice-model issue on structured product recommendations made in 2018-2019 (referred in 2024 on a "date of knowledge" trigger when the products matured and delivered less than expected). Each complaint is upheld at FOS at £180,000 to £250,000. Total awards: £630,000. Each-and-every limit on the policy: £1 million. Aggregate limit: £2 million. Aggregate limit responds. Defence costs on top: £45,000. Renewal follows. Insurer requires the firm to demonstrate what has changed since the advice model, and prices the next year accordingly. Under-insurance on the aggregate limit would have exposed the firm materially; the sizing decision at the prior renewal was load-bearing.