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FOS faces criticism for new funding structure plans

The Financial Ombudsman Service has been criticised for its consultation on proposed funding changes that would see the proportion of the income it receives from its levy compared with case fees re-balanced.

In a call for input response on the consultation, the Building Societies Association suggests the funding proposal goes against the “polluter pays” approach to funding consumer complaints.

It says the new structure proposed by the FOS will see firms that generate fewer complaints subsidise firms that account for the majority of complaints.

The FOS launched its consultation last month calling for changes to its future funding after it de-scales operations in September.

The Ombudsman is hoping for a 50/50 split of costs between case fees and the all-firm levy. Currently, 15 per cent of FOS funding comes from the levy with the remaining 85 per cent from case fees.

BSA chief executive Robin Fieth says: “I recognise the desire of the FOS for more stable funding in a post-payment protection insurance world, however there is a fundamental mismatch between this and the reality of their operational peaks and troughs.

“It is perverse that the recommended funding model will benefit firms with poorer customer service at the expense of those with a far better record of fair treatment.”

BSA’s submission to the FOS says a risk-based model for its funding “should not be impossible” and that FOS should consider a “polluter pays” concept where firms’ contribution is adjusted relative to its complaints profile.

Talk of risk-based levies across the industry to split costs more accurately between firms based on behaviour is not limited to the FOS.

Many in the industry continue to push for this model to be implemented for the Financial Services Compensation Scheme after advisers were hit with an additional £69m levy earlier this year.

Rather than a structural change to fees for its funding, the FOS could consider taking the case fee upfront rather than at a complaints’ resolution, the BSA says.

With the Ombudsman set to significantly cut operation output next month after the 31 August PPI deadline, the BSA is also using the call for input to push for a reduction of spending

Around a third of total costs for the FOS are currently paid to contractors to take on to handle high complaint volumes.

Fieth says: “The FOS has navigated the troubled waters of mass claims well, however we see this proposal as a serious misstep and we urge them to drop it.”

Feedback on the consultation is due tomorrow, while another call for input will open in December on FOS plans and budgets for 2019/20.

The proposed implementation date from the findings is 1 April 2020.

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