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Paying for police and undertakers

In March the FSA published CP04/4 outlining plans for funding the police and undertakers. Sorry if that caused you to spill the day&#39s first cup of coffee – I do of course mean the Financial Ombudsman Service and the Financial Services Compensation Scheme.

The Mortgage Code Arbitration Scheme has served as the complaints handling arm of the Mortgage Code since 1998 but from Mortgage Day both of the above will become obsolete. Instead the FOS and the FSCS will become the first point of redress for consumer claims, with the FOS adjudicating over complaints against &#39live&#39 firms and the FSCS performing a similar role for those that have ceased to trade.

This change is not in itself bad news for intermediaries. Both the FSA and the FOS acknowledge standard mortgage intermediation as a low-risk activity and the media&#39s willingness to portray the FOS as a consumer champion obscures the fact that 65% of claims are found in favour of intermediaries. Dealt with effectively claims can be resolved without FOS intervention with the FOS itself saying it does not expect a wave of complaints against mortgage advisers in 2005.

To some degree this was reflected in the decision to exempt mortgage firms from the 2004/05 FOS levy with two free cases (otherwise £550 each) also being offered for this period. However, with almost 20,000 firms expected to come under FOS jurisdiction between now and January 2005 contributions will not be waived forever.

The FOS is funded by a mixture of general levy and case fees. Directly authorised firms will contribute from Mortgage Day. Whereas case fees are set in proportion to complaint processing costs, CP04/4 proposes that the levy facing firms be based on two contribution groups – one of mortgage firms and the other of general insurance firms. According to the FSA&#39s logic this should prevent the unfair cross-subsidisation of one group in the event of an upturn in complaints against the other.

For both the FOS and FSCS it is proposed that annual income will be the measure used to calculate contributions. This is in line with the FSA&#39s plans for its annual or periodic fees and will be based on information submitted during the application process and ongoing reporting from 2005.

Funding for the compensation scheme will probably be on similar lines with separate levies to cover operating costs and compensation costs. FSCS is currently funded through three contribution groups according to whether firms are active in designated investment business, deposit-taking or insurance. With thousands of firms set to join the FSA regime, CP04/4 proposes the addition of two new contribution groups for mortgage advice and general insurance firms, with firms paying for each activity undertaken.

With implications for firms&#39 bottom lines, the regulator must not lose sight of proportionality. With AMI lobbying hard on these fee proposals, rest assured that the intermediary voice is being heard.

The consultation period closes on July 2 2004 and members can access AMI&#39s summary of CP04/04 Funding of the Ombudsman and Compensation Schemes at www.a-m-i.org.uk/closed/cug/ami_says.asp

I should know but I don&#39t

Q: Which section of the FSA Handbook covers the complaints regime?

A: This is set out in Disputes Resolution: Complaints. In addition to laying down definitions for complaints, DISP contains details of regular complaints returns that firms will have to submit to the FSA (see www.fsa.gov.uk/pubs/other/disp1_annex1r_form.pdf).

DISP1.2.4G commits firms to having appropriate and effective internal complaint-handling procedures that are proportionate to the likely level of complaints arising from activities undertaken, track record and the firm&#39s size.

DISP also rules that a firm&#39s complaints provisions should be understood by all relevant employees, be written in a statement and provide for:

• Receiving complaints

• Responding to complaints

• Investigating complaints and

• Notifying complainants of their right to go to FOS.

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