The Ministry of Finance said the financial ombudsman service has become a “quasi-regulator” and has developed new avenues for dispute agencies that will delay it to the financial conduct authorities.
An advisory report prepared by Treasury Finance Minister Emma Reynolds (pictured) says that in the 25 years since the FOS was founded, sometimes overlapping with the larger FCA, the company has been confused about the company and created inconsistent rulings for consumers.
“The FCA’s regulatory approach as a financial behavior regulator is not always consistent with the approach FOS uses to address complaints between consumers and companies,” Reynolds said.
She added: “In a few but influential cases, the potential of this tension may lead to FOS acting as a quasi-regulator.
“This could allow companies to operate in an uncertain regulatory environment, have destructive consequences for the company’s ability to invest, innovate and develop, and can lead to unpredictable outcomes for consumers.”
Reynolds, who began reporting in March, added that “the company highlighted the potential for pressure on the remedial system when it is necessary for FOS to handle cases related to large-scale remedial incidents”.
FOS handles millions of dollars in long-term payment protection insurance compensation claims, and regulators could face claims from millions of drivers if they make mistakes when buying a car when they buy it.
The company also complained that FOS has taken little action against the trend of claims management companies since the payment protection insurance scandal in the 1990s.
Reynolds said when parliamentary time allows for a series of reforms, including:
- FOS will be required to find that the company’s behavior is “fair and reasonable” and that it complies with relevant FCA rules
- New framework on how FOS and FCA work together – where ambiguity is unclear in the case of FCA rules application, FOS will be required to seek perspective from FCA, and FCA will be obliged to respond
- 10-year deadline for complaints brought to FOS
- The FCA will play a greater role in the quality compensation case, sometimes called a quality remediation event. FOS will “be obligated to forward potential broader implications or large-scale remediation incidents to the FCA, which will be obliged to consider”
Industry welcomes a clearer role between FCA and FOS.
“The review of the financial ombudsman service is designed to create a more coherent framework between IT and FCA,” said Simon Robinson, senior consultant at Broadstone.
“Special focus is on large-scale remedial incidents, given that the Supreme Court’s ruling on auto financing is timely.
“The hoped results seem to be a more flexible approach that can react with agility and speed as FCAs are more involved, thus creating consistent and fast results.”
Earlier this month, UK finances also marked FOS as a “quasi-regulator” and insisted that the government issued a timeline for reforms for the corpse.
The Ministry of Finance report, review of the Financial Ombudsman Service, open consultation for 12 weeks until October 8.
