FOS publishes Discussion Paper on future funding model

The Financial Ombudsman Service (FOS) published a Discussion Paper on 14 June 2022 on possible changes to its future funding model¹. The paper invites financial services organisations, trade bodies, professional representatives including claims management companies, consumer groups and other stakeholders to give feedback on the options set out¹. It forms part of the FOS commitment to consider revisions to its funding model, also set out in its Action Plan¹.

FOS says its funding should more closely reflect the actual cost of resolving over 150,000 diverse complaints each year¹. It states that when it was first set up in 2001, its income was split 50:50 between case fees and levies; over time the impact of PPI meant 85% of its income came from case fees, and it is currently split 44:56 (levy: case fee)¹. All financial businesses must pay a levy whether or not FOS received complaints about them, ranging from £45 a year for a small business to over £7 million for a high-street bank¹.

Nausicaa Delfas, Interim Chief Executive and Chief Ombudsman, said:

"As part of our commitment to change and improve to deliver a better service for our customers, we are today inviting views on proposals to change our funding model. This is to ensure that the Financial Ombudsman Service's funding is sustainable for the future, is more transparent in its management of fixed costs, and more closely reflects the actual costs of resolving over 150,000 diverse complaints each year."

Nausicaa Delfas, Interim Chief Executive and Chief Ombudsman, Financial Ombudsman Service¹

The paper sets out options for a funding structure for 2023/24¹. FOS states it has not included cost projections at this stage because the focus is on testing whether the funding structure options are sound¹.

Proposal	Current position	Proposed change
Compulsory Jurisdiction (CJ) levy	£106 million; not designed to recover specific costs such as staffing and property¹	Recover fixed overheads such as IT, property and other support functions; initial analysis suggests the CJ levy for 2023/24 could increase above £106 million, expected to reduce over time¹
Voluntary Jurisdiction (VJ) levy	£0.7 million collected from firms signed up to the VJ scheme¹	A fixed fee for all VJ participants, anticipated to be no more expensive than the current arrangement¹
Case fee structure	Flat structure since inception, except a temporary supplementary case fee for PPI complaints¹	Review whether a differentiated model, including fees varied by complaint type, would better ensure the firm complained about pays the costs¹
Timing of case fees	A case becomes chargeable when referred, but FOS invoices only once a case is closed¹	An initial fee on receipt of a chargeable case, with an outstanding fee payable on closure¹
Refunds of overpaid case fees	Firms have 2 years from payment to seek repayment¹	A general time limit of 12 months from the date a case fee is paid¹

FOS also proposes ideas for funding beyond 2023/24, including charging professional representatives a fee to bring complaints, varying case fees by case complexity, and discounts for cases resolved in batches¹. It confirms its core purpose is to resolve financial disputes independently, quickly and with minimum formality on the basis of what it considers fair and reasonable in all the circumstances of the case¹. Separately, on 8 June 2022 FOS announced that Abby Thomas has been appointed as the new Chief Executive and Chief Ombudsman¹.

Why it matters for households

The funding model determines who pays for the Financial Ombudsman Service and how much, and the paper states that the levy is payable by all firms authorised or registered by the FCA, whether or not complaints are made about them¹. Firms' levy and case fee costs are business costs, and the paper does not say whether or how any of them would be passed on to customers. The paper does not propose a charge to consumers for bringing a complaint; the proposal to charge professional representatives a fee to bring cases concerns representatives, not individual complainants¹. The paper states that the current CJ and VJ levies are not designed to recover specific costs such as staffing and property, and that the CJ levy for 2023/24 could initially increase above £106 million before reducing over time¹. None of the options has been decided: the paper is a consultation, and the options FOS plans to take forward will form part of its 2023/24 budget consultation later in 2022¹. The paper does not report any change to the time limits for consumers to bring complaints, to how much compensation the ombudsman can award, or to how long the ombudsman takes.

What happens next

The deadline for responses is 5 August 2022¹. A feedback statement will be published in October 2022¹. FOS will consult on its 2023/24 budget later in 2022 as part of its usual budget cycle, and the options it plans to take forward following stakeholder feedback will form part of that consultation¹. The Consultations and discussion papers guide explains how new rules are made and how to respond.

Sources1 cited