The FOS is considering models for financing levies

The Financial Ombudsman Service (FOS) is looking to update its levy structure.

In a consultation paper published today (June 14), the FOS is calling on stakeholders to give their views on possible changes to its future funding model. This includes its levy structure as well as its application fee structure.

Comments are open until August 5.

The FOS proposes that the compulsory jurisdiction levy recovers its fixed overhead costs rather than covering a particular proportion of its income.

Fixed overhead includes IT, real estate, and other support functions.

The FOS says: “This will bring more transparency and certainty to our funding model.

“It will also give businesses confidence that we are managing our cost base effectively.

“As these fixed costs must primarily cover the organization’s infrastructure, it seems appropriate that these costs be shared by industry.”

Initial FOS analysis suggests a mandatory jurisdiction levy for 2023/24 could exceed the current £106m.

The FOS expects it to decrease over time as it refines its analysis and implements its action plan.

It also proposes to charge a fixed fee for all participants in voluntary jurisdiction.

The Mediator estimates that it will not be more costly than the current arrangement.

It says: “This option aims to reduce the administrative costs that arise from calculating the generally low levy amounts for each business individually.

“This will create efficiencies for voluntary jurisdiction companies who currently need to provide us with detailed information to inform our calculations.”

The FOS currently collects £700,000 from companies that sign up to its voluntary jurisdiction system.

This is calculated based on the size of the voluntary jurisdiction participants’ business and the industry blocking their business.

The Mediator currently has two levies: a general levy for compulsory jurisdiction and a levy for participants who have opted for voluntary jurisdiction.

The general levy only applies to businesses within the compulsory jurisdiction. The Financial Conduct Authority (FCA) raises and collects them.

It is payable by all companies authorized or registered by the FCA. This also includes companies that have had no cases referred to the FOS.

The FOS collects a separate tax from companies that have joined the voluntary jurisdiction.

Current compulsory jurisdiction and voluntary jurisdiction levies are not designed to recover specific costs.

In addition, the FOS is considering changing its application fee structure. Several options are being considered. They include billing by case stage, by type of product or service involved in the complaint, or through upfront fees with outstanding fees payable at closing.

Since its inception in 2001, the FOS has had a flat-rate filing fee structure, with the exception of a temporary additional filing fee for PPI complaints.

The ombudsman cited administrative simplicity and the reduced risk of creating unnecessary incentives as advantages for this structure.

The FOS adds: “The reality is that cases vary widely. Some cases cost significantly more than our current £750 case fee to resolve, while others cost less.

“We want to examine whether a differentiated application fee model would more effectively ensure that the financial firm against whom a complaint has been lodged pays the costs of their complaints.

“We also want to understand whether this would encourage businesses to engage with us more constructively.

“Differentiated case fees could make it easier for us to recoup the costs of processing a case based on the number of steps in our case processing that it has to go through or the complexity of the case.”

Yet the FOS has not ruled out retaining the current block fee structure.

Nausicaa Delfas, Acting Managing Director of FOS and Chief Ombudsman, said: “As part of our commitment to change and improve to provide better service to our customers, we are today seeking feedback on proposals to change our funding model.

“This is to ensure that FOS funding is sustainable for the future, is more transparent in its management of fixed costs and more accurately reflects the true costs of resolving over 150,000 diverse complaints each year.”

The FOS recently appointed Abby Thomas as its next Chief Executive Officer and Chief Ombudsman.

She will take up her new duties and replace Delfas in the fall.

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