The Modernisation of FOS

Chancellor Rachel Reeves announced a move to modernise the Financial Ombudsman Service (FOS) in her Mansion House speech on 14 November 2024 .

As many readers will know, the FCA has a secondary objective to facilitate the effectiveness of the UK economy and to encourage growth. Readers (or at least those who deal with FOS regularly) may also question whether or not the general approach of FOS is conducive to this objective.

It may therefore be encouraging that plans are afoot to modernise FOS. The Chancellor's announcement at the Mansion House speech recognised that the rules governing the way in which FOS handles complaints have not necessarily kept up with changes to the complaint landscape, and FOS and the FCA have now jointly issued a Call for Input on modernising FOS. 

This notes that the current redress framework works well for individual complaints but that 'challenges can occur' when FOS has to deal with mass redress events. FOS and the FCA are asking for input on how the framework can be modernised, the problems that mass redress events cause firms (and what changes could be made to allow these to be better managed) and how the FCA/FOS could work together to ensure their views on regulatory requirements are consistent. 

The chancellor pre-empted the Call for Input in her Mansion House speech and included discussion of this around other topics centred on the need to drive growth and competitiveness.

Quite what a mass redress event constitutes is not yet clear. However, we're fairly confident that this will cover market wide mis-selling issues and concerns with specific products. The possibility of FOS reform may be welcomed by those who have had to deal with such issues – FOS was initially set up as a quick and informal resolution service to deal with low value complaints and it probably wasn’t envisaged that it would have to deal with the type of market-wide issues that it has frequently addressed in the past decade or more. Any concerns about FOS not being adequately set up to deal with mass redress events has likely been amplified by the volume of pending vehicle finance complaints (with a further 15,000 being made to FOS in the three months to April this year) and  the contribution to complaint volumes by claims management companies, with FOS looking to bring forward a charging regime which would see professional representatives charged for bringing claims (as discussed here and here).

This is very much a first step towards the modernisation of FOS and the redress process. The industry will be hoping that this will lead to a more balanced view of liability when a mis-selling issue arises instead of a 'one size fits all' approach. They may also be hoping that any changes could include requirements that FOS fully considers things such as causation and legal principles relevant to whether or not a duty has been breached. However, given that FOS can now award up to £420,000, it's vital that any changes ensure that the service is best equipped to provide appropriate consumer protection, balanced against fairness to respondents, with the appropriate degree of oversight.