Plans to reform the Financial Ombudsman Service (FOS) have been revealed by the Government.

The reforms will return the FOS to its original role as a simple, impartial dispute resolution service that resolves complaints quickly and effectively, while ensuring it operates within a clearer and more predictable framework alongside the Financial Conduct Authority (FCA).

The announcement comes as part of the government’s response to a public consultation held last year that sought views on how to address concerns that, in a small but significant minority of cases, the FOS has acted as a quasi-regulator. The government heard through the review and consultation that this was creating uncertainty for consumers and businesses that was holding back investment.

Economic Secretary to the Treasury Lucy Rigby said “These reforms to the Financial Ombudsman Service will make redress clearer, more consistent and easier to navigate. By setting clearer boundaries, we are restoring confidence in the system and ensuring it works fairly and predictably for consumers and businesses alike.”

The consultation response also confirms that the FOS will not be made a subsidiary of the FCA.

Sarah Pritchard, Deputy Chief Executive at the FCA, said “We want a system that delivers fair compensation fast, while providing greater certainty to businesses so they have the confidence to invest, grow and compete. We’re acting at pace to change what we can within our current powers, ahead of the Government’s wider reforms.”

James Dipple-Johnstone, Interim Chief Ombudsman at the Financial Ombudsman Service, said “The financial sector has changed significantly since the Financial Ombudsman was set up 25 years ago, which is why we are driving forward changes to transform the redress system. We are laying the foundations for an agile, responsive and modern service which is fit for the future and has the confidence of consumers and firms alike.”

Ahead of the changes taking effect the FOS and FCA have outlined separate proposals that will speed up complaint resolution, and better help firms in the short term to resolve customer issues and escalate major or emerging redress issues earlier.

Phil Smith, Head of Redress at Broadstone, said “The government’s response marks an important step towards bringing greater clarity and consistency to the UK’s redress framework. Ensuring that the Financial Ombudsman Service places greater weight on firms’ compliance with FCA rules should provide much-needed certainty for firms, while the proposed referral mechanism between the FOS and FCA could help resolve areas of regulatory ambiguity and inconsistency.

“A time limit of 10 years for bringing complaints to the FOS may enable firms to improve future planning and increase investment. The exceptions flexibility is important especially for longer term financial products where the cause for complaint may take longer to be established, particularly for cases with less financially aware consumers.

“Recent large-scale cases such as PPI, and the motor finance investigation, highlight why a more structured framework for mass redress events is needed. A system that allows issues to be identified and resolved earlier should benefit consumers through faster and more consistent outcomes, while also helping firms manage costs and avoid problems escalating into industry-wide redress programmes.

“Greater transparency through thematic reporting and a clearer structure for FOS decision-making should also help firms better understand how complaints will be assessed. Taken together, these reforms aim to strengthen confidence in the redress system by making it more predictable, more transparent and better aligned with the UK’s regulatory framework.”

Shanika Amarasekara, CEO of the Finance & Leasing Association, said “We have always thought it a fundamental point that lenders should be able to rely on compliance with the FCA’s rules to mitigate liability in complaints procedures.

“While extremely pleased that our discussions with all parties – the FOS, FCA and Government – have yielded this result, it is nonetheless disappointing how long the industry has had to deal with a quasi-regulator."

Source: Credit Connect