Key takeaways from the Financial Ombudsman Service's Annual Report and Accounts for 2023-2024

The Financial Ombudsman Service (FOS) has published its Annual Report and Accounts for 2023-2024 (the Report) providing valuable insights into the trends and challenges faced by the financial services industry. It is important to understand these developments to proactively manage risks and ensure compliance.

Increase in Complaints

The Report highlights a significant 21% increase in complaints compared to the previous year. This surge can be attributed to various factors, including the challenging economic climate, the Financial Conduct Authority's (FCA) review of motor finance commissions and the impact of the Consumer Duty (the Duty) implemented by the FCA in July 2023 for open products. 

The increase in complaints at a glance:

• Total number of complaints – a 21% increase in complaints from 165,149 in 2022/23 to 199,025 in 2023/24 (8% more than the FOS expected). 
• Total number of complaints resolved – a 9% decrease from 209,471 in 2022/23 to 192,077 in 2023/24 (80% of cases were resolved within 6 months).
• Irresponsible and unaffordable lending - a 74% increase in complaints from 19,080 in 2022/23 to 33,321 in 2023/24. In part, this may be a reflection of the challenging economic climate and the financial pressure on consumers.
• Fraud and scams –a 28% increase in complaints from 21,673 in 2022/23 to 27,675 in 2023/24. This reflects the continued evolution and increasing sophistication of the tactics used by scammers.
• Motor finance commission - a 10% increase in complaints from 11,446 in 2022/23 to 12,604 in 2023/24. The FOS continued to receive complaints after the FCA announced its review in January 2024 and they expect to see an increase when the FCA review has concluded (that review is likely to be delayed now that permission has been granted for the lead claims to be appealed).

Focus on Consumer Duty

The Consumer Duty was implemented for open products in July 2023 and closed products in July 2024. The ombudsmen and investigators are applying the Duty to their assessment of complaints, with collaboration across teams to ensure they approach issues consistently.

The FOS has emphasised the importance of firms demonstrating fair treatment of customers, particularly in light of the Duty. The ombudsman has observed an increase in cases related to product suitability, customer understanding, and firms' responses to complaints. It is crucial for finance professionals to ensure that their products and services align with the principles of the Duty and that they have robust processes in place to address customer concerns promptly and fairly.

What next for the FOS

The FOS are operating in an environment with a number of policy challenges and they also have to deal with new products entering the market. To give some examples, the FCA's review into motor finance has prompted a significant increase in complaints, with a further increase expected when that review has concluded. The Payment Services Regulator has published their new rules on reimbursement where a fraud or scam has occurred. The Government has signalled the regulation of 'Buy Now, Pay Later' products and the FOS continues to work with stakeholders on the consistent implementation of the Duty. This all adds up to make a challenging environment for FOS.

In addition, the Chancellor announced a move to modernise the FOS in her Mansion House speech on 14 November 2024. As a result, the FOS and FCA jointly issued a Call for Input on how the framework can be modernised, the problems that mass redress events cause firms and how the FCA/FOS could work together to ensure their views on regulatory requirements are consistent. To read more on the move to modernise the FOS please click here.

Key takeaways

The increase in the number of complaints highlighted in the Report demonstrates the importance of clear communication, fair claims handling and adhering to regulatory changes. Key considerations for finance professionals and their professional indemnity insurers include:

• Consumer Duty Compliance - ensuring that products and services meet the requirements of the Duty, particularly in terms of product governance, price and value, and customer understanding.
• Effective complaint handling - implementing robust complaint handling procedures that prioritise fairness, transparency, and timely resolution.
• Staff Training - providing adequate training to staff on the Duty, complaint handling, and regulatory requirements.
• Data management - maintaining accurate and up-to-date records to support claims decisions and regulatory reporting.
• Review of policies and procedures - conducting regular reviews of policies and procedures to ensure they are aligned with regulatory expectations and industry best practices.

By proactively addressing these areas, finance professionals and their professional insurers can mitigate the risk of the increasing number of complaints made to the FOS.

To read more, please click here.