The Financial Ombudsman Service (FOS) has confirmed it is to proceed with a proposal to charge claims management companies (CMCs) and other professional representatives £250 to refer a case to its service from 1 April 2025.
The move was first announced in November 2024.
Professional representatives will be able to bring 10 cases to the service for free each financial year. After that point, every subsequent case they refer will be chargeable. They will receive £175 back in credit if the complaint is found in favour of the consumer they represent, reducing the charge they pay to £75.
The independent Financial Ombudsman Service is and will remain free to all those who bring their cases directly, as well as to families and friends, charities, and voluntary organisations who may be helping them.
FOS revealed a large proportion of complaints referred to its dispute resolution service in recent years have been driven by professional representatives who either charge consumers or take a percentage of any redress awarded.
Currently financial service firms pay a £650 case fee for complaints against them that the Financial Ombudsman investigates, while professional representatives do not pay a case fee.
Under these new rules, if a complaint referred by a professional representative is not upheld or is withdrawn, the financial business against whom the complaint was made will pay a reduced case fee of £475, instead of £650.
FOS said the move is aimed at making its funding arrangements fairer and to encourage professional representatives to submit better-evidenced complaints, considering their merits more diligently before referring them.
More cases brought by professional representatives
James Dipple-Johnstone, FOS’ interim chief ombudsman, said: “We’ve seen more cases brought by professional representatives, but fewer of these cases leading to a better outcome for their clients.
“Currently, there is little commercial incentive for representatives to ensure the complaints they bring are well-founded or have merit.
“As a not-for-profit service, we expend our finite resources handling thousands of withdrawn or abandoned cases, which can lead to longer wait times for other customers.
“The charges we are introducing from April will bring better balance to our fee model, helping us to resolve disputes quickly and ensuring a wider contribution towards our running costs.”
FOS added that between April and December 2024, around 47% of complaints submitted to it were from professional representatives.
While it said the professional status of these firms should mean that these complaints have a considerably higher success rate, compared to consumers who use the service without professional representation, only 26% of cases brought by professional representatives were found in favour of the consumer, compared to 38% of those brought directly by consumers for free.
Dipple-Johnstone added: “Professional representatives can play an important role in resolving financial disputes by providing high-quality, good value services to those people who make an informed choice to employ them.
“But it is important for consumers to know that it is and will remain free for them to bring a complaint directly to our easy-to-use service, and those who do so can keep all of any reward we make.”
Wider range of measures
The fee forms part of a wider range of measures being brought in to encourage firms to submit well-evidenced complaints.
The introduction last year of an enhanced digital service means professional representatives must now provide relevant evidence at the earliest stage – speeding up processes and enabling the Financial Ombudsman to dismiss inappropriate complaints.
The Baroness Manzoor CBE, chairman of the Financial Ombudsman Service, said: “I believe this marks an important and significant milestone in the financial services landscape, enabling us to continue our vital work in resolving disputes for both complainants and firms quickly and with minimum formality.
“We will continue working closely with all stakeholders to ensure a smooth transition and to support CMCs and other professional representatives throughout this process.”
FOS and the Financial Conduct Authority (FCA) recently ran a joint Call for Input looking at how to modernise the redress framework to ensure it is fit for the future.
Sudden and significant increases in complaints – including those driven by professional representatives – can cause firms to struggle to effectively respond, delaying any customer redress that may be due.
Full details of the new charging regime were outlined in a policy statement published today.
The proposal to charge a fee to professional representatives who refer cases to the Financial Ombudsman Service has been subject to two consultations and the organisation published a summary of the feedback it had received in November last year.
In January, the FCA published a letter which outlined its strategy for supervising CMCs.
It said that it would undertake work to consider whether CMCs are investigating the merits of potential claims before referring a complaint, and that it would look at CMCs submitting high volumes of complaints to the Financial Ombudsman Service but achieving low uphold rates.
And at the end of the year, the regulator identified fair value outcomes, including the impending pure protection market review, and claims handling within life insurance as part of its ongoing priorities for the Consumer Duty.