RegulationJul 12 2018

Fos posts further deficit as it eyes reform

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Fos posts further deficit as it eyes reform

The operating deficit reported for the year to the end of March 2018 amounted to £700,000 - 96 per cent less than in the previous year, when it was £17m.

But the service expects its deficit to deepen again in the coming year to £60m, as it grapples with the lingering effects of payment protection insurance (PPI) claims.

The Fos has been making a loss for several years and last year it acknowledged this was unsustainable and said it would be looking into a new funding model.

In its latest report and accounts, out today (12 July) the Fos said the deficit would continue to be funded from the service's reserves but it also said that because it had managed to progress a significant number of complaints, it had not needed to draw on its reserves as much as anticipated.

Caroline Wayman, the chief ombudsman, said: "At the start of 2017/18, we budgeted to resolve 280,000 [payment protection insurance] cases – 52,000 in the first half of the financial year, and the remaining 228,000, representing over 80 per cent of the total, in the second half of the year.

"Meeting this target represented a significant operational challenge – especially in light of operational delays with certain businesses and ongoing legal issues.

"As we delayed planned recruitment of PPI case handlers, and weren’t able to resolve these complaints, there was also an impact on our finances, resulting in a small operating deficit."

The Fos has budgeted to make a deficit in 2018/2019 of around £60m, which will be funded from its reserves.

It stated: "Looking beyond PPI, we recognise that our service may be smaller into the future – and that we’ll need to change our funding model as a result.

"Over the coming year we will continue to review our options – actively engaging with our stakeholders about a fair and sustainable future funding model, so we’re ready for a time when our work isn’t dominated by PPI."

This morning the independent review into the Fos, following allegations made by Channel 4's Dispatches, recommended a new levy structure based on the risk firms bring to the market, which would allow the Fos to do more stable forward planning.

The ombudsman had a total income of £249m in 2017/18, with 11 per cent of this coming from the levy, while its expenditure was £290m.

During 2017/18 the Fos handled 339,967, complaints, which was 3 per cent more than it expected, with most of these - 186,417 - relating to PPI.

The Fos said there had been "continued and rapid growth" in complaints about short-term lending, including payday and instalment loans, with 18,378 complaints about this issue - 8,000 more than expected.

For 2018/19 the Fos is expecting 410,000 complaints and to collect £230m of operating income, including £25m of levies.

Dan Clayden, director of Clayden Associates, said: "Financial services are based on stability and trust in the system, and having an ombudsman and a compensation scheme is crucial to providing that, so they have got to be there and they have got to be funded but the way you fund them is a difficult question.

"Maybe they should spread it so those with more of a track record of having complaints pay higher fees."

damian.fantato@ft.com