The Financial Ombudsman Service (FOS) is set to undergo the most significant package of reforms since its inception, the Treasury has announced, returning it to its original role as an impartial dispute resolution service.
The changes are in response to concerns the FOS has acted as a quasi-regulator in some cases, and follow a public consultation held last year that sought views on how to address the issue.
It is hoped the new legislation will restore clarity to the financial services redress system, the government said, confirming the FOS will not be made a subsidiary of the FCA.
The government has confirmed it will legislate to:
- Adapt the ‘Fair and Reasonable’ test used by the FOS to determine cases, setting out that where firms have met their obligations under relevant FCA Rules, they must be found to have acted fairly and reasonably by the FOS.
- Introduce a referral mechanism between the FOS and the FCA to require the FOS to seek a view from the FCA where the FOS considers there may be ambiguity in what FCA rules require, or where it considers an issue raised may have wider implications across the financial services industry.
- Introduce an absolute time limit of 10 years for bringing complaints to the FOS, while giving the FCA the ability to make exceptions to this time limit.
- Make structural changes to the FOS to provide greater consistency in decision making by giving the Chief Ombudsman overall responsibility for FOS determinations.
- Make it easier for firms and consumers to understand and learn from FOS decisions by introducing a requirement for the FOS and FCA to publish regular thematic reports which provide useful information and clarification on how the FOS will consider certain types of complaint, including types of complaint covered by FCA rules.
- Ensuring the FCA, as part of its responsibility for setting the regulatory response to mass redress events, has the tools it needs to respond to these events quickly and effectively, in the small number of cases where such an intervention is appropriate.
Economic secretary to the Treasury Lucy Rigby said: “These reforms to the Financial Ombudsman Service will make redress clearer, more consistent and easier to navigate.
“By setting clearer boundaries, we are restoring confidence in the system and ensuring it works fairly and predictably for consumers and businesses alike.
James Dipple-Johnstone, interim chief ombudsman at the FOS, added: “The financial sector has changed significantly since the Financial Ombudsman was set up 25 years ago, which is why we are driving forward changes to transform the redress system.
“We are laying the foundations for an agile, responsive and modern service which is fit for the future and has the confidence of consumers and firms alike.”
Sarah Pritchard, deputy chief executive at the FCA, said the regulator is “acting at pace” to change what it can ahead of the government’s wider reforms.
“We want a system that delivers fair compensation fast while providing greater certainty to businesses so they have the confidence to invest, grow and compete,” she said.
Simon Harrington, head of public affairs at PIMFA, welcomed the package of proposals but questioned how they would work in practice.
“For our sector, the adaptation of the Fair and Reasonable test is superficially welcome,” he said. “However, we retain concerns around how useful it will be when the FOS is required to reach judgements on issues such as an assessment of suitability.
“In considering how the adaptation of the Fair and Reasonable test is reflected in legislation, we would encourage HMT to ensure that FOS gives full and balanced consideration to the evidence provided in all circumstances of any case. Doing so will provide firms with extra certainty and remove the risk of subjective judgement that this package of measures is intended to address.”
