FOS funding discussed

Currently more than 70% of the ombudsman service’s funding comes from the fees which it charges firms for considering complaints (usually £360 – the first two cases per firm per year not being charged for). The remaining funding comes from annual fees payable by all firms, calculated according to their role in the different industry sectors they are involved in.

FSA director of retail themes Vernon Everitt said:

"This is a sensible point at which to have a discussion around funding the ombudsman service since we can look at it in parallel with the exercise already underway to review the funding of the Financial Services Compensation Scheme. We have an open mind on the outcome and look forward to hearing the views of all concerned."

The chief ombudsman Walter Merricks said:

"The way in which the costs of the ombudsman service are divided amongst financial firms is a subject close to the heart of many in the industry. The "two free cases" concept that we introduced for firms two years ago - in recognition of the fact that 95% of firms have fewer than three disputes referred to the ombudsman each year - has been warmly welcomed, especially by smaller firms. We now look forward to hearing more ideas and feedback on other possible funding options - as part of a broader debate on how firms should pay for the ombudsman service."

The Discussion Paper sets out a wide range of options for future funding:

continuing the existing arrangements whereby the ombudsman service is financed by a combination of a case fee and a levy;

raising all the funding by annual fees only, with no case fees, or alternatively by case fees only; or

adopting a new approach which would combine a small flat-rate annual fee for all firms, and a case fee. The paper discusses a number of possible combinations of the flat-rate fee, the case fee and the number of cases a firm is allowed each year before the ombudsman service begins to charge case fees.

After evaluating responses to the Discussion Paper, the FSA and the ombudsman service will publish a Consultation Paper in Autumn 2007, proposing changes to the future funding arrangements (and transitional arrangements if required).

This review is proceeding in parallel with the FSA’s review of Financial Services Compensation Scheme (FSCS) funding, reflecting the different roles and activities of these institutions. This should enable firms to see the overall impact of these issues on them.