Increased FOS costs from 01.04.20

Relevance:                   All firms.

Action required:           None, information only

Further to changes made in 2019, to increase access to the Ombudsman Service and to increase its awards limit, the Financial Ombudsman Service has just closed consultation on making some changes to the way in which the service is funded.

Currently, the FOS generates 85% of its income from adjudication fees charged on a case by case basis. The remaining 15% comes from a general industry levy.

The proposal, from 1 April 2020, is that the industry levy will cover 40% of the Ombudsman’s costs, with a rise to 50% planned.

At the same time, the individual case adjudication fee for firms will increase from £550 to £650 (for all cases closed after 1 April 2020).

Additionally, for the year commencing 1 April 2020, the number of “free” cases for each regulated business will drop from 25 to 10.

Whilst the Ombudsman has confirmed its expectation that this will still leave 80% of regulated businesses not paying for any individual adjudications, some businesses will need to consider the impact of that change on their costs.

In terms of mitigating the effect of the levy, which will be charged based on the firm’s regulated income for business covered by the Financial Ombudsman Service, it appears that there is little benefit likely to be gained in providing “tailored” income at the time of submitting the firm’s six-monthly return.

This is because the Ombudsman can now adjudicate on cases brought to it by commercial businesses with a turnover up to £6.5 million (and either a balance sheet below £5 million or with 50 or fewer staff). As the Ombudsman can adjudicate on cases for the vast majority of your commercial clients, it is likely that there will be very limited savings to be achieved by excluding the remaining, very large, commercial clients, from your fee returns.

As always, if you would like any guidance on the issues arising from the consultation process, do let us know. The expectation is that the Ombudsman will publish its final feedback on 31 March 2020.