We support the government’s aim to reform the legislative and broader framework in which the Financial Ombudsman Service (FOS) operates to prevent the FOS from acting as a quasi-regulator, and to ensure that the FOS is delivering its role as a simple and impartial dispute resolution service. These reforms, if fully realised, can bolster the UK’s competitiveness. We recommend that:
- HM Treasury works in partnership with the Financial Conduct Authority (FCA), the FOS and the industry to ensure an holistic approach to the proposals, ensuring that there are no unintended consequences arising from rules-based or operational changes made before the enabling legislation, which will provide the key benefits outlined, comes into effect.
- The FOS and FCA expedite their work on rules-based application of elements of the regime where legislation may be repealed or amended. We recognise that legislation can take time, but suggest this work should not be undertaken sequentially.
- There is a rigorous approach to removing ambiguity and uncertainty. For example, the proposed new fair and reasonable test should state that a firm’s conduct is fair and reasonable where ‘it has complied with relevant FCA rules’. It should not include the component ‘in accordance with the FCA’s intent for those rules’ as this will undermine the ability of the reforms to achieve the full benefits envisaged by HM Treasury.
- The reforms ensure there can be no retrospective application by the FOS of contemporary FCA rules. This is a priority and will result in more predictable and consistent resolution of complaints for both consumers and firms, and positively impact the UK’s competitiveness.
- HM Treasury reconsiders the need for an appeals process. This mechanism exists in other ombudsman schemes and would provide judicial clarity through the creation of binding precedent to inform future FOS cases. This would be beneficial for customers and firms who are parties to complex and high-value cases, including mass redress events.
- The formal referral mechanism outlined by the FCA and FOS should include the ability for the FCA Practitioner Panel to help inform the accurate interpretation of FCA rules. They can also provide sector-specific commercial insight to ensure a full understanding of the products and services that could form the basis of FOS complaints.