The Financial Conduct Authority (FCA) has confirmed that the Financial Ombudsman Service will soon be able to require financial services firms to pay significantly more compensation to consumers and businesses.

From 1 April, the current £150,000 limit will increase to £350,000 for complaints about actions by firms on or after that date.

For complaints about actions before 1 April that are referred to the Financial Ombudsman Service after that date, the limit will rise to £160,000.

The regulator 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 small and medium-sized enterprises (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.

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.”