Calls for reform: Financial Ombudsman Service at crossroads

The Credit Services Association (CSA), the only UK trade body for the debt collection and purchase industry, has released a comprehensive report highlighting the urgent need for reform of the Financial Ombudsman Service (FOS).

It recommends the option of folding FOS into the Financial Conduct Authority (FCA), saving significant costs and efficiencies and improving consistency with the FCA’s overall approach.

The paper discusses how FOS – which was originally established to provide quick and informal dispute resolution - has grown into a costly and quasi-regulatory body, creating significant challenges for the functioning of the financial services sector.

The report, ‘Fair and Reasonable? Reforming Dispute Resolution’, was written by the CSA’s Head of Policy, Daniel Spenceley, and outlines how the FOS has evolved far beyond its original remit, resulting in significant uncertainty and excessive costs for industry. The industry-funded body now carries operational costs in excess of £278 million - 14 times its initial budget – and has seen complaint volumes double in the last decade, each of which incurs a charge of £650 from the FOS. Rising complaint volumes have arguably been driven by speculative and poorly evidenced cases from for-profit claims management companies, with FOS reporting recently that they accounted for nearly half of all cases. As a result, firms face a costly and unpredictable dispute resolution environment, undermining confidence in the financial services sector and deterring investment and innovation.

The report identifies several critical areas for reform, including the quasi-regulatory nature of FOS, inconsistent decision-making, and the absence of a legitimate appeals process.

In order to deliver effective reform, the CSA has called on the Government and the FCA to:

1. Return the FOS to its original dispute resolution remit
2. Establish a proportionate route to appeal FOS decisions
3. Introduce changes to clarify time frames and reduce poor quality referrals

The CSA emphasises that Government and FCA must act decisively to address the dysfunction in the redress system, returning FOS to its intended role as an effective alternative to court for dispute resolution.

CSA CEO, Chris Leslie commented on the report: “FOS is now an enormous institution, with over 2500 staff and a £278m budget, five times the size of a typical district council. The review being conducted by the Treasury and reporting this summer ought to consider amalgamating FOS under the auspices of the FCA’s structure, releasing significant funds to support the prevention of money problems, such as investment into consumer financial education. The time has come to refashion FOS into a proportionate dispute resolution service aligned with the independent regulator.”

Read the full report here.

For more information and other CSA reports click here.

Ends

Notes to Editors

• The Credit Services Association (CSA) is the only national trade association in the UK representing organisations in the debt collection and purchase industry. Our members collectively employ over 9,500 professionals and manage over £35 billion in consumer debt across nearly 39 million accounts, returning more than £3.2 billion annually in collections.
  In addition, they oversee over £10 billion in commercial debts across approximately 3.2 million commercial accounts. 
  Our diverse membership serves a wide array of creditors, including banks and utility companies, and includes specialist entities such as tracing agencies and law firms.
• CSA’s training arm is part of CSA (Services) Ltd which is a subsidiary of the Credit Services Association (CSA).
• For more information contact CSA Head of Marketing Colleen Peel (colleen.peel@csa-uk.com)