PIMFA, the trade association for wealth management, investment services and the financial advice and planning industry, has called on the Financial Ombudsman Service (FOS) to take advantage of the opportunities presented to it in the Financial Services and Markets Act and level the playing field between Claims Management Companies (CMCs) and financial services providers.
In its response to the FOS Consultation ‘Charging Claims Management Companies and other Professional Representatives’, PIMFA argues that whilst the decision to levy a fee to CMCs is welcome, it will not achieve the policy objectives set out by the government when this power was given to the FOS.
PIMFA argues that a case fee of £250 for CMCs and Professional Representatives does not act as a disincentive to bring forward targeted block cases against firms that have little chance of success.
In its response, PIMFA suggests that FOS should review its approach and seek to levy a higher charge, which would result in firms and CMCs sharing the burden of case fees. Assuming a case fee of £900 as outlined in the consultation proposals (£250 case fee for the CMC and £650 for the respondent firm), PIMFA suggests a 50-50 split between both parties, meaning that respondent firms would be required to pay £450 as would CMCs and professional representatives.
PIMFA believes that in doing so, the FOS can put forward a framework which is more equitable for respondent firms whilst also recognising the limited role that CMCs play in advancing cases on behalf of consumers.
PIMFA is unconvinced that raising case fees for CMCs would result in consumer detriment, given that there is little evidence that the use of a CMC results in a demonstrably better outcome for consumers. It would also point to the presence of a fee cap for CMCs regulated by the FCA as evidence that the case fee would not be passed on to the end consumer. In considering this point, PIMFA would also urge the Solicitors Regulation Authority (SRA) to accelerate its plans to adopt a regulatory framework for CMCs which mirrors the FCA.
Simon Harrington, head of Public Affairs at PIMFA, said: “We would never advocate for the FOS to be anything other than free of use for consumers. It plays a valuable part in the financial services ecosystem, and we will always defend the right of consumers to access it.”
“In accepting the principle that the FOS is and should always remain free to access for consumers, we find ourselves questioning why it is that CMCs should be able to insert themselves into a process for their economic benefit where there is little evidence to suggest that their presence is in any way contributory towards consumers receiving a good outcome.”
“Whilst we are pleased to see that the FOS has accepted the principle that CMCs and professional representatives should be required to contribute towards case fees which they bring forward, we strongly believe that the FOS should review its proposals in order to set out a more equitable settlement between CMCs and respondent firms.”
“The FOS has a unique opportunity here to be bold and address the economic imbalance which currently exists between CMCs and the financial services sector. In doing so, the FOS can set out a framework which is equitable for firms and recognises the roles of both parties as ‘customers’ of the FOS.”
