The Financial Ombudsman Service (“FOS”), the body responsible for resolving disputes between consumers, smaller businesses and financial services firms, has announced plans to increase its levies and case fees in 2020.
The FOS’ latest plan and budget consultation reveals proposals to increase its case fee (paid by firms) by £100 from £550 to £650. It will also double its levies from around £46 million to £106 million in 2020. The case fees count for 60% of the FOS’ funding while the levies make up to around 40%.
This follows the restructure that the FOS underwent in 2016 in order to futureproof the agency against it’s over reliance on fees generated by PPI complaints. A recent whistleblower allegation published in The Guardian claimed the FOS was heavily reliant on PPI complaints subsidizing the cost of general casework, which could result in a future funding issue for the FOS as PPI complaints start to reduce.
The FOS explained that the changes should ensure it operates “effectively in light of the considerable uncertainty and volatility we expect to continue to experience – against a backdrop of a smaller, but more complex future caseload. We also suggested that our funding arrangements should better reflect the wider value our service brings to the financial services sector, in terms of preventing complaints and encouraging fairness.”
Increasing number of complicated cases
The FOS expects nearly 250,000 more complaints next year and has said that the disputes it handles are becoming more complex. The majority of complaints will still likely be related to wrongly sold PPI. Although, with the deadline to file these complaints having passed earlier this year, the FOS believes the end is in sight for dealing with these complaints.
The FOS confirmed that it expects complaints about pensions and investments to reduce by a couple of thousand to around 13,000 a year. It says that it has also seen a rise in complaints about self-invested personal pensions (“SIPPs”). The FOS also noted that a far higher than expected amount of SIPPs are being upheld, supporting “the broad trend toward complexity that we’re seeing across our casework, many of these complaints are hard-fought, subject to ongoing legal action, and in some cases involving firms that have gone into liquidation – factors which create challenges around reaching a quick resolution.”
Impact on firms
The Association of Financial Mutuals estimates that firms will have to pay double their existing levy to the FOS. It also believes that small firms may end up unfairly penalized. Currently, firms are allowed 25 free cases and pay a case fee thereafter. Under the new plans, smaller firms will only be allowed 10 free cases, in addition to grappling with the increased case fee.
If you are interested in finding more information about the FOS future strategy for 2020/2021, you can access its consultation report here.