BSA: FOS needs to rethink funding proposals

Changes to the way the Financial Ombudsman Service is funding will ramp up costs for firms with fewer complaints.

BSA: FOS needs to rethink funding proposals
The Building Society Association has called on the Financial Ombudsman Service to reconsider its funding proposals which will see costs for firms with fewer complaints soar.

As things stand FOS is 85% funded by fees paid by firms for each complaint that is elevated to them. The remaining 15% is funded by a levy on all firms based on their market presence.

However the Financial Ombudsman Service’s Our Future Fundingconsultation has called for a 50/50 split betweenbetween case fees and the ‘all-firm’ levy.

The result of the new structure would be that firms which generate fewer complaints, whether due to size or behaviour, will heavily subsidise firms which account for the majority of complaints to this ombudsman.

Robin Fieth (pictured), BSA chief executive, said: “I recognise the desire of the Financial Ombudsman Service for more stable funding in a post-PPI 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. This is counter to the principles outlined in the July 2018 independent report into the Service.

“The BSA is a strong supporter of the Service, which 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.”

The BSA has suggested a number of alternatives which may help the Financial Ombudsman Service’s funding situation, without resorting to this structural change.

Suggestions include taking the case fee upfront rather than at complaint resolution. In addition, around 30% of the total costs for this ombudsman are paid to contractors taken on to handle high complaint volumes.

After the PPI tail, the Service should be able to reduce its costs by flexing contractor numbers down.