The Financial Ombusman Service (FOS) was set up to provide a very valuable service – to resolve individual, fact-specific complaints between financial institutions and their customers quickly and with limited formality. Recent statistics demonstrate that the FOS certainly continues to be a popular choice for consumers.
And that excludes the infamous PPI complaints. Annual Complaints data from the FOS shows a 58% increase in the volume of complaints, that is received by the FOS compared to the previous year. This sharp increase has been driven by a 66% increase in complaints about banking and credit products. And that is with the current accounts being the most complained about product. While demonstrably a popular choice for dispute resolution, its popularity risks cementing the widely held view that, as it stands, the FOS, may no longer be fit for purpose. Unless steps are taken to improve this complaint handling process, this trend will only get worse following recent redundancies at the service.
Compared to twenty years ago, the FOS finds itself looking at more complex cases. While such cases may make up a smaller proportion of the FOS’ caseload, they typically require an additional level of analysis. And so it takes more time to reach a conclusion. This, teamed with an increasing caseload and diminishing workforce, leaves an inefficient process. Firstly, in an ever-increasing principles-based regulatory system, the FOS often has to interpret perceived gaps in regulation. Secondly, due to the current complaint handling rules placed on firms by the FCA, FOS decisions are precedent setting, in circumstances where it is not strictly required to apply the law.
Thirdly, there is no robust or effective mechanism consumers and firms can use to challenge a FOS decision. While a decision can be subject to judicial review, these proceedings are notoriously difficult. These three issues often leave the FOS, customers, and the financial services industry in an uncomfortable position. In light of Brexit, the financial services industry, including the FOS, is currently under the spotlight as HM Treasury considers the future of regulation in its Future Regulatory Framework Review. With this, the FOS’ new Chief Executive Officer, Nausicaa Delfas, has an opportunity to work with industry and government to establish a complaint handling system that works for both firms and customers.
There should be more visible collaboration between the FOS and the FCA in cases that require a policy determination. It may also be sensible to implement a twin-track decision-making process. And so that cases with wider market implications are processed in a different way. Lastly, the FOS should be subject to a robust appeals process. And that is in respect of those cases that have wider implication. Given the potential impact on the services market, it is appropriate that such cases should be subject to a greater level of scrutiny.