Details of three new initiatives concerning the Financial Ombudsman Service (“FOS”) have been released in recent months. It is likely these initiatives will have a profound effect on the FOS and its users.

  1. The National Audit Office (“NAO”) Report

The NAO has released a report following a study into the efficiency of the FOS. The report is intended to reflect the changing nature of the FOS and make constructive recommendations for it to follow going forward. The five key recommendations are:  

  • The FOS should do more to quantify the impact on its annual unit cost outturn figures. Factors such as changes in the complexity of its cases and upstream investment in new technology have caused costs to increase over recent years.
  • The FOS should develop a better understanding of the potential for delays within each stage of the case-handling process and the maximum number of cases each member of staff can work on.  
  • Since the FOS was established, more than 50 per cent of its cases have come from just three issues: mortgage endowments, payment protection insurance and banking/credit card charges. The FOS should evaluate whether its current charging regime is effective and consider charging users at an earlier stage.
  • The way in which budgets, risks and progress are monitored is not standardised across the FOS. Costs and benefits for projects must be budgeted and measured. This will establish a clear baseline to make decisions about current and future strategy.  
  • A variety of communication channels, such as open forums, should be used to improve staff engagement where the projects are making significant changes to ways of working.

The FOS have confirmed in a press release published alongside the report that it welcomes the NAO.s findings and recommendations.

  1. FOS Fee Consultation

In a consultation document issued on 6 January 2012, it was revealed that from April 2013 the FOS proposes to increase the number of free cases allocated to each user from 3 to 25. This would have the overall effect of meaning only 1% of the regulated businesses paid case fees. For the largest users (the ten or so financial groups that account for over 70% of the FOS caseload), the FOS has proposed a new group account arrangement which would measure more accurately the total costs to the Ombudsman of the work that each of these users generate. The FOS has stated the current charging arrangements use a 'one size fits all' approach, which no longer works fairly alongside the diverse range of cases the FOS has to deal with. Although smaller users may consider this to be a step in the right direction, larger financial institutions may be left paying higher fees and a more onerous process for paying them. Conversely, it is possible that, over time, this new fee structure may allow the larger financial institutions to have more influence at the FOS as the top ten lenders will effectively be funding the entire service. A further FOS fee initiative concerns PPI fees. The FOS are planning to increase their fees from £500 to £850 for all PPI claims. This proposal is likely to generate objections from users but particularly from those institutions who have large numbers of their rejected customer complaints upheld as acceptable by the FOS.  

  1. Impact of the Freedom of Information Act (“FOIA”) on the FOS

The FOIA gives anyone the right to ask a public body for all the information they hold on any subject. Information requests do not have to be justified and any information disclosed following a request becomes public. A vital part of assessing the appropriateness of disclosure is a public interest test, where the public interest in disclosure of the information outweighs all of the exemptions set out in the FOIA.

The FOIA applies to all public authorities. In 2009, the Ministry of Justice announced that it intended to appoint the FOS as a public authority for the purposes of the FOIA. This extension came into effect in the last quarter of 2011.

Key points for FOS users to consider include:

  • Much of the information held by the FOS contains personal data. It will be important for FOS members to decide whether the terms and conditions of their customer contracts need to reflect the fact that some customer data may fall under FOIA?s jurisdiction and may be subject to public disclosure.
  • It will be possible for individual consumers and CMCs to make FOIA requests to FOS. This may assist the CMCs in formulating strategies for handling cases and potentially for targeting particular lenders.  
  • Certain information provided to the FOS may be subject to exemptions from disclosure, particularly where it is provided in confidence and is commercially sensitive. However, disclosure may be considered to be of public interest, which could be a difficult presumption to rebut.
  • Communications held by the FOS which are marked without prejudice will not automatically mean the document is exempt from disclosure. However, it may assist in establishing that the information was given in confidence and/or that the information would be commercially prejudicial.  

Conclusion

The NAO and the FOS have both acknowledged that the FOS has not been running as efficiently or effectively as it could. The NAO recommendations have been well received by the FOS, but it is currently unclear how they will be implemented going forward. The implications of the FOS's fee consultation could be wide ranging, and may be a real concern for larger financial institutions whose fee payments to FOS could significantly increase. Finally, it appears that CMCs may benefit from the FOIA extension in that it will aid them to gather data to assist them in bringing claims and that information previously considered confidential by the FOS could make its way into the public arena.