Financial Ombudsman Service  

Fos proposes changes to levy funding structure

Fos proposes changes to levy funding structure
Nausicaa Delfas, interim chief executive and chief ombudsman at the Fos

The Financial Ombudsman Service has proposed changes to its compulsory jurisdiction and voluntary jurisdiction levies, as well as its case fee structure.

In a consultation paper published today (June 14), the Fos said currently, the CJ (£106mn) and VJ (£0.7mn) levies are not designed to recover specific costs, such as staffing and property. 

Instead, in setting the CJ levy for a financial year, the Fos has previously aimed to raise half of its income from the levies (44 per cent) and half from case fees (56 per cent), as per its 2022/23 budget.  

However, moving forward, it has proposed that the CJ levy should recover its fixed overheads such as IT, property and other support functions, rather than cover a particular proportion of its income. 

“This will bring more transparency and certainty to our funding model,” the Fos said. “It will also provide confidence to firms that we are effectively managing our cost base. 

“As these fixed costs are to primarily cover the organisation’s infrastructure, it seems appropriate that these costs are shared by industry.”

The Fos said its initial analysis suggests that the CJ levy for 2023/24 could increase above its current £106mn but as it implements the action plan, announced in December, it expects this will reduce over time

In addition, the Fos currently collects the levy from firms that signup to its VJ scheme. This is calculated based on the size of VJ participants’ business and in which industry blocks their business falls. 

As part of the consultation, it is proposing to charge a fixed fee for all VJ participants instead which it anticipates will be no more expensive than the current arrangement.

“This option aims to reduce the administrative cost that stems from calculating the generally small amounts of levy for each business individually,” it said. “This will create efficiencies for VJ businesses which currently have to provide us with detailed information to inform our calculations.”

The Fos said it will consult on its 2023/24 budget later this year, as part of its usual budget cycle. The options it plans to take forward from this paper, following feedback from stakeholders, will form part of that consultation.

Fos interim chief executive and chief ombudsman Nausicaa Delfas, said: “As part of our commitment to change and improve to deliver a better service for our customers, we are today inviting views on proposals to change our funding model. 

“This is to ensure that the Financial Ombudsman Service’s funding is sustainable for the future, is more transparent in its management of fixed costs, and more closely reflects the actual costs of resolving over 150,000 diverse complaints each year.”

Case fee structure

The Fos has had a flat case fee structure since its inception, with the exception of a temporary supplementary case fee for payment protection insurance complaints.

It said the benefits of this are “administrative simplicity” and the “reduced risk of creating unhelpful incentives”.