FOS review mulls new funding model
By Justin Cash
An independent review into the Financial Ombudsman Service has mooted the idea of linking funding contributions to the risk of complaints firms pose.
The review was carried out by Money and Mental Health Policy Institute vice chair Richard Lloyd after a Channel 4 documentary earlier this yearcriticised the complaints adjudicator for providing a lack of training on complex cases and bias among investigators, amid a host of other alleged failings.
Lloyd’s review, published today, calls on FOS to estimate the medium-term costs it is likely to incur given case volumes and capacity in order to run a good quality, efficient service.
The review adds: “Based on this analysis, the FOS and FCA should consider consulting on a new levy funding structure for the FOS that meets this cost, is based on the risk that firms bring to the market, and enables more stable forward planning.”
Currently, eight firms, including the largest banks, account for around two-thirds of all FOS complaints.
Around three-quarters of FOS’ workload is funded by these largest financial services groups, with the rest coming from a levy on all firms and a case fee of £550 applicable after 25 “free” cases.
For IFA networks, each network is entitled to the same 25 free cases regardless of membership size.
Lloyd’s review has found no evidence of systemic bias at the FOS, and also questions allegations made by Channel 4 that thousands of PPI complaints were left unanswered for years and thousands of other letters were left unopened.
There were also accusations in the Channel 4 documentary that FOS’s approach to calculating distress and inconvenience awards was formulaic.
While the review notes that “the approach to this was revised in 2014 and “internal guidance suggests levels of award based on severity”, FOS should still review how it trains its staff on these awards.
The review is also critical of a past performance management approach that risked a system where missing targets could lead to pay and promotion prospects cut for investigators.
Lloyd notes that “a number of experienced staff are disengaged” at the FOS, but morale is improving as a new organisational structure beds in.
He writes: “I have found that people at the FOS have strongly-held and positive values. They believe in its mission and want to ‘do the right thing’, while recognising the need to improve.”
Overall, the review says the FOS should focus improvements on six areas in particular, including its casework handling capability for new complex complaints, staff management and quality assurance.
The review calls on the FOS to be clearer to the public on what its role is as an independent adjudicator.
It reads: “FOS is not a campaigning consumer champion or a regulator, and that is not always well understood or explained.
“No stakeholder expressed the view to me that the FOS is unnecessary or overly costly. But there are legitimate frustrations about the speed with which the FOS resolves disputes, and concerns about the quality of some casework.”
“Consumers should…be fully informed about their right to make a service complaint. Quality assurance checks should be carried out to ensure that staff are not putting undue pressure on consumers to accept a decision quickly.”