The Financial Ombudsman Service (FOS) will undergo a series of significant reforms aimed at returning it to its original purpose of being a “simple, impartial dispute resolution service“.
This will include a ten-year backstop for bringing complaints against financial services firms, although the Financial Conduct Authority (FCA) will have scope to make execeptions to this.
Among the other changes, a fair and reasonable test supporting firms which have met their FCA obligations will be introduced and regular reports outlining how certain complaints will be dealt with will be published by the regulators.
Ahead of the changes taking effect, the FOS and FCA outlined separate proposals aimed at speeding up complaint resolution and better helping firms in the short term to resolve customer issues and escalate major or emerging redress issues earlier.
The response also confirms the FOS will not be made a subsidiary of the FCA.
‘Clarity and certainty’
The government will legislate to overhaul the service with the aim of restoring “clarity to the financial services redress system and provide greater certainty for consumers and firms, ensuring the FOS is fit for the future”.
Legislation will be brought forward when Parliamentary time allows to reform the framework that governs the FOS, which will include:
- Adapting the ‘Fair and Reasonable’ test used by the FOS to determine cases, setting out that where firms have met their obligations under relevant FCA Rules, they must be found to have acted fairly and reasonably by the FOS.
- Introducing a referral mechanism between the FOS and the FCA to require the FOS to seek a view from the FCA where the FOS considers there may be ambiguity in what FCA rules require, or where it considers an issue raised may have wider implications across the financial services industry.
- The introduction of an absolute time limit of 10 years for bringing complaints to the FOS, while giving the FCA the ability to make exceptions to this time limit.
- Making structural changes to the FOS to provide greater consistency in decision making by giving the chief ombudsman overall responsibility for FOS determinations.
- Easing the way for firms and consumers to understand and learn from FOS decisions by introducing a requirement for the FOS and FCA to publish regular thematic reports which provide useful information and clarification on how the FOS will consider certain types of complaint, including types of complaint covered by FCA rules.
- Ensuring the FCA, as part of its responsibility for setting the regulatory response to mass redress events, has the tools it needs to respond to these events quickly and effectively, in the small number of cases where such an intervention is appropriate.
Public consultation response
The announcement is part of the government’s response to a public consultation that sought views on how to address concerns that, in a small but significant minority of cases, the FOS had acted as a quasi-regulator.
The consultation received hundreds of responses including from consumer groups, financial services firms, trade associations, academics and individuals.
The government heard through the review and consultation that this was creating uncertainty for consumers and businesses that was holding back investment.
It said the proposals would provide consumers with greater consistency and predictability around how the financial services redress framework operates and would not water down consumer protections.
Easier to navigate
The government said it believed the reforms would return the FOS to its original role as a simple, impartial dispute resolution service that resolves complaints quickly and effectively, while ensuring it operates within a clearer and more predictable framework alongside the FCA
Economic secretary to the Treasury Lucy Rigby said: “These reforms to the Financial Ombudsman Service will make redress clearer, more consistent and easier to navigate.
“By setting clearer boundaries, we are restoring confidence in the system and ensuring it works fairly and predictably for consumers and businesses alike.”
Sarah Pritchard, deputy chief executive at the FCA, said: “We want a system that delivers fair compensation fast, while providing greater certainty to businesses so they have the confidence to invest, grow and compete.
“We’re acting at pace to change what we can within our current powers, ahead of the government’s wider reforms.”
James Dipple-Johnstone, interim chief ombudsman at the Financial Ombudsman Service, said: “The financial sector has changed significantly since the Financial Ombudsman was set up 25 years ago, which is why we are driving forward changes to transform the redress system.
“We are laying the foundations for an agile, responsive and modern service which is fit for the future and has the confidence of consumers and firms alike.“
