Financial Ombudsman Service  

FOS to "significantly increase" income from levy

FOS to "significantly increase" income from levy

The Financial Ombudsman Service has proposed "significantly" increasing the proportion of the income it gets from its industry levy, as it predicts a shrinking service in light of the upcoming payment protection insurance deadline. 

In a funding consultation published today (July 2) the ombudsman proposed a funding model with a 50:50 split between case fees and the levy, a move from its current funding split of 85 per cent coming from case fees and 15 per cent from the levy. 

The service warned it was now receiving significantly more income from case fees than levies: an estimated £251m in 2019-20, compared with £45m from levies. 

The Fos said reducing its reliance on income from case fees would help it "manage the continued trend toward complexity in complaints as PPI subsides" and help protect the service from volatility in demand for its help.

In 2015 the Fos warned its operating model was "not sustainable" because of the large volume of PPI cases it was dealing with.

Rebalancing its income structure, the ombudsman said, would reduce the risk of the Fos asking businesses covered by the service for additional funds throughout the financial year. 

The Fos antipates the changes would see its case fee remain around its current level of £550. 

Caroline Wayman, chief ombudsman and chief executive at the Fos, said: "When we consulted on our strategic plans and budget in December 2018, many stakeholders reflected on the strengths of our existing levy‑plus‑case‑fee model.

"There was interest too in exploring the possibility of a risk‑based levy. Since then, we’ve considered these options in light of changing demands on our service, feedback we’ve received, and the funding principles we’ve previously established.

"We’re now proposing what we think, given all these factors, is a practical and fair way forward."

The ombudsman has also today set out proposals to reduce the number of free cases for which a company pays no fee when a complaint is made against it, with a suggestion the allowance should be cut from 25 to 10 for smaller firms and 125 to 50 for larger "group account" firms.

The Fos predicts many of the smallest firms it covers were "very unlikely" to have more than 10 cases referred to the service each year, with some having never reached the 25‑case threshold.

The service estimated the changes would see 280 more companies pay a case fee under the new threshold of 10 cases, which is expected to generate additional income of around £4.5m. 

A spokesperson for the Fos said: "Overall, more than eight in 10 firms whose customers complain to us wouldn’t pay any fees at all, compared with around nine in ten at the moment." 

In July last year the ombudsman reported an operating deficit for the year to the end of March 2018 of £700,000 - 96 per cent less than in the previous year, when it was £17m - with a warning that it expected this to deepen in the coming year as it looked to reform its finances.