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”.
However, the reality is that some cases cost much more than its current £750 case fee to resolve, while others cost less.
“We want to review whether a differentiated case fee model would more effectively ensure that the financial business against which a complaint has been made pays the costs of their complaints,” it said.
“We also want to understand whether it would incentivise firms to engage with us more constructively.”
Differentiated case fees could allow the Fos to more easily recover the costs of dealing with a case based on how many stages in its casework it needs to go through, or how complex the case is.
In the short term, it is proposing to explore some simple changes which will balance the need to have a case fee model that reflects the costs of dealing with different kinds of complaints.
“At the same time, we want to make sure that the impact of any changes – administrative or otherwise – are proportionate. The different fee structures that follow are not intended to be mutually exclusive and could potentially work in conjunction.”
The alternative would be to retain the current flat case fee model, which the Fos said is a very simple approach to understand and requires no changes to existing processes.
“This administrative efficiency fits with our broader goal of being an efficient organisation,” it said. “We would need to review the case fee amount in light of any changes to the levy because the two are interdependent and, in combination, need to cover our operating costs. We also need to consider whether our fees should increase with inflation.”
Another option which the Fos said has been well received by stakeholders is to charge a different fee depending on the stage at which a complaint is closed.
It said cases often become more expensive as they work their way through the process as additional resources are spent on them and expense reaches its peak if complaints go to an ombudsman for a decision.
“Charging by case stage, therefore, helps to ensure that the full costs of a particular case are recoverable, and should be relatively straightforward to implement.
“ As the fees would only be designed to cover our costs, there would not be an incentive for us to push complaints to the final decision stage.”
The Fos is consulting on a number of different approaches to the case structure and will be open for responses until August 5.
A feedback statement will be published in October.
sonia.rach@ft.com
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