New funding structure for Financial Services Ombudsman penalises firms with fewer complaints

Posted On: 
12th August 2019

BSA response to Financial Ombudsman Service Our Future Funding consultation

In its response to the Financial Ombudsman Service’s (the Service) Our Future Funding consultation, the BSA urges ‘the Service’ to reconsider its funding proposals which will see costs for firms with fewer complaints soar, whilst firms with substantial volumes will see what they pay because of complaints made against them drop by c£70m a year¹.

At present the Service is 85% funded by the fees paid by firms for each complaint that is elevated to them (£251 million²) and 15% funded by a levy which is paid by all firms based on their market presence (£45 million³). The levy has already increased by 87% in the last year, up from £24 million in 2018/19.  

The new funding proposal is to split the costs 50/50 between case fees and the ‘all-firm’ levy.  The result of the new structure will 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.

In its response 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.  

Commenting BSA Chief Executive Robin Fieth 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 Service4

“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.”