Planning the Financial Ombudsman Service’s future is impossible.
Unlike a conventional business, it cannot shut its doors, expand or limit its clients.
The volume, timing and types of its activities is entirely at the mercy of a strange combination of financial services companies, the public, the FCA and claims management companies.
Since its 2001 creation, the Fos had dealt with two complaint handling bulges – mortgage endowments and payment protection insurance –the extent of each of which was completely unpredictable.
Against that background, the excitement generated by Financial Conduct Authority chairman Charles Randell’s comment about a “fundamental” change to the ombudsman’s “funding arrangements” has to be tempered by an appreciation that the Fos’s caseload may not change predictably in the future.
As Mr Randell pointed out, 2019/20 is much too early to alter anything. The deadline for complaining to companies about PPI occurs in August this year. Last-minute cases could be clogging the ombudsman until 2021.
Although the Fos is reporting lowering PPI case numbers, companies are reporting a different picture to the FCA. This could reflect a last highly unpredictable growth spurt.
Fos budget consultation
The Fos’s consultation on its budget, published on December 17, begins by comparing actual outcomes to the year’s budgeted figures. In pure accounting terms, the numbers are not bad with the deficit slightly lower than expected.
Behind this are more disconcerting figures, notably a reserve-funded deficit of about £58m and 20 per cent new caseload growth. The Fos expects new cases to increase from 339,967 to 407,000 this year and 460,000 next.
A 172 per cent increase in 2018/19 in short-term lending cases to 25 per cent of the PPI total and growth everywhere else is driving the highest new caseload in five years. Bad lending cases are far more difficult to do than PPI.
Assessments of irresponsible lending depend hugely on subjective view of debt generally. There is no regulatory or legal guidance on compensation or liability here. The FCA needs to help with the burst of IT failures in banking cases and payment frauds.
The 15 per cent increase in investments and pensions should worry financial advisers. Moreover, the ombudsman looks, from its cases closed figures, as though it is actually building a backlog.
In the 2019/20 figures, most of the predicted difference is accounted for by a spike of 20 per cent of normal annual PPI caseflow and short-term lending remaining where it is. Essentially, the Fos expects 13 per cent more cases but to resolve 34 per cent more. Most of this is necessary just to avoid a backlog building-up.
CMC and small business cases only account for 2,900 of next year’s expected work.
Some of the promised additional resource for SME cases appears primarily designed to keep the Treasury Committee quiet, such as: four new casehandling teams, more mediation, a specialist professional practice group, an external panel to develop the Fos’s approach, more legal and actuarial support, three lines of quality assurance and enhanced analytic tools.