Financial services firms stand to pay lower fees in future where claims management companies (CMCs) bringing complaints on behalf of consumers before a UK watchdog fail with their case, Pinsent Masons said in a briefing note.
The change was announced by the Financial Ombudsman Service (FOS) and represents a rebalancing of the fee model that supports the ombudsman’s operations. The new policy takes effect from 1 April.
The FOS is an independent dispute resolution service that resolves complaints made by consumers and small businesses about financial services providers. It has the power to award compensation against providers where it upholds complaints raised against them. The FOS is funded by a combination of levies and case fees.
Currently, financial service firms pay a £650 case fee where complaints raised against them are investigated by the FOS, irrespective of the complaint outcome. The fee is designed to incentivise firms to resolve complaints with consumers in-house.
Increasingly, complaints referred to the FOS are brought by CMCs on behalf of consumers: almost half of the complaints referred to the FOS between April and December 2024 –103,000 of the 220,000 total – were submitted by what the FOS termed “professional representatives”. According to the FOS, however, just 26% of those cases were successful. Consumers that brought cases to the FOS directly during that period were successful with their complaints in 38% of cases. Consumers face no charge when referring cases to the FOS.
Anthony Harrison, a financial services regulatory expert at Pinsent Masons, said: “Under the current complaints-handling regime, there has been too little incentive on CMCs to apply any kind of rigour as to whether the complaints they’re advancing have real merit. That can clog up the complaints system and waiting times at FOS; raise false hopes for customers whose complaints are unlikely to succeed; and create significant financial and resource burdens for firms responding to such complaints. The FOS proposals should hopefully improve that situation by reducing frivolous and poorly evidenced complaints.”
Under the FOS’ new policy, professional representatives will be able to bring 10 cases before the FOS for free each year, after which they will be charged £250 per case submitted. The companies will obtain £175 back in credit where complaints succeed. No charges will apply to consumers that raise complaints with the FOS directly.
For firms that are the subject of complaints, they will pay a reduced case fee of £475 if a complaint referred by a professional representative is not upheld or is withdrawn.
The FOS said the new policy is designed to encourage professional representatives to consider the merits of complaints “more diligently before referring them” and to ensure they are “better-evidenced”. The body consulted on the plans last year.
Jonathan Cavill of Pinsent Masons, a specialist in contentious regulatory matters, said: “It will be interesting to see how the proposals impact CMC business models, especially those that rely on high volumes of complaints. It may lead to some adapting their approach to ensure they’re not incurring excessive costs, whilst others may decide to drop out of this area altogether. Hopefully, it signals better outcomes for customers, with firms better placed to focus their energies on resolving cases of real merit.”
