Ombudsman to overhaul funding

Ombudsman to overhaul funding

The Financial Ombudsman Service has said their operating model is unsustainable and warned it will have to change how it is funded "in the not-too-distant future".

It has published its draft plan and budget for 2018 to 2019, which was put out for consultation this morning, setting out how many complaints it expects to receive in the coming year.

The ombudsman has said it will freeze its levy and case fees for the sixth consecutive year but has warned the financial services sector this period could soon be coming to an end.

The ombudsman said: "While we've again frozen our levy and kept our case fees at the same level for six consecutive years, this isn’t sustainable indefinitely.

"And as we’ve been developing our service, we know we'll need a funding model that's better-suited to the more streamlined and flexible way we are now resolving complaints.

"For these reasons, we’ve continued to carefully consider how our service might be fairly paid for in the future."

In 2015 the ombudsman warned it would have to consider how it was funded because it was making a loss and reliant on reserves.

Because of the complexities the Fos is currently facing, for example the impending deadline for payment protection insurance complaints, it said now is not the time to make changes to the way the service is paid for.

But it has said it is already talking to people in the industry about what changes it could introduce.

In 2018 to 2019 the ombudsman has said it expects to receive 410,000 complaints, an increase from the 337,000 forecast for this year.

This increase is driven by significantly more complaints about PPI and short-term lending but the ombudsman is predicting a continuing decline in complaints about packaged bank accounts.

It expects its operating costs to increase by around 14 per cent because of additional expenditure on contractor staff to help it deal with PPI, which will be funded from the service's reserves.

The ombudsman warned that as PPI complaints become more complex, there will be less scope for resolving them in "cohorts" meaning there will be fewer economies of scale.

The operating income of the Fos for 2018 to 2019 will be £230.7m while its total expenditure will be £293.1m.