HM Treasury's consultation on its review of the Financial Ombudsman Service (FOS) set out proposals to create a new framework of interaction between FOS and the Financial Conduct Authority (FCA), revise the ‘fair and reasonable’ test and introduce an absolute time limit for bringing complaints to the FOS, among other measures.
Poor conduct in financial service is a significant driver of financial difficulty and problem debt, alongside other factors like low financial resilience and negative life events. FOS’s role as an impartial and accessible alternative to court proceedings is essential to put things right for consumers that have cause for complaint and consumer trust in financial services.
Significant redress events in recent years such as in the high-cost credit and subprime credit card markets are the result of poor conduct. In the case of motor finance, courts upheld FOS’s judgement that motor finance brokers acted unfairly and the FCA had earlier revised its rules to ban the practices giving rise to redress.
We recognise the high volume of complaints driven by PRs in recent years has put strain on some firms and FOS, and in the case of motor finance given rise to a systemic market risk. These high volumes of complaints are a consequence, however, of real misconduct and were avoidable through more effective regulation and enforcement, and by responsible conduct by firms.
We welcome elements of the proposals in the consultation, such as steps to prevent low quality bulk complaints driven by claims management firms that are unhelpful for both consumers and firms. We do not agree, however, that the proposal in this consultation to limit the scope of the ‘fair and reasonable’ test can be taken forward in a way that is compatible with FOS’s role as a fair and impartial complaints adjudicator. We are also concerned that the proposal to create a right for the parties to a complaint to request a referral to the FCA risks undermining FOS’s credibility and effectiveness as an impartial complaints adjudicator and deepening the imbalance of power between consumers and firms.
We do not support the introduction of an absolute time limit for referring complaints to FOS. The principle that consumers should have access to redress once they become aware of cause for complaint is essential to a credible redress framework, and an absolute time limit is not compatible with that principle. An absolute time limit is also likely to cause several practical problems, including driving more complaints to courts which would not be a step forward for consumers or firms.
Finally, we are disappointed the Government has not yet examined ways to increase access to redress for consumers that have experienced poor conduct without relying on fee-charging professional representatives.
FOS’s role in supporting a responsible financial services market with high standards of conduct is essential to the Government’s growth agenda. The Government should not take forward steps that lower consumer protection and create the conditions for future misconduct, and should focus on working with the FCA and stakeholders to prevent poor conduct from emerging in financial services.