The government and two City regulators are looking to overhaul the way that consumers claim compensation from companies after a string of high profile scandals triggered an avalanche of claims.
In her speech to the City at Mansion House yesterday, Chancellor Rachel Reeves revealed the government had “developed a new agreement” between the Financial Conduct Authority (FCA) and the Financial Ombudsman Service (FOS) to reshape the way that redress is paid to investors.
The changes follow calls for mass payouts following scandals like the collapse of Neil Woodford’s eponymous investment fund, in which 250,000 investors were left millions of pounds out of pocket.
The FOS said in a statement that while the current system “works well for individual complaints about specific issues”, it had faltered when faced with “sudden and significant increases in complaints”, which can cause firms to “struggle to effectively respond”.
“The problem can be intensified if large numbers of complaints are submitted on behalf of consumers by professional representatives,” it added.
The FCA and the FOS opened a “call for input” today to gather feedback on changes to the payouts system and ensure that “consumers receive appropriate redress when things go wrong”.
The FOS said it will look to bring in changes that allow companies to “identify harm at an early stage, proactively address it, and resolve complaints more effectively themselves, reducing the need for consumers to complain to the FOS”.
In her speech, Reeves said the FOS “plays a vital role for consumers” when things go wrong, but added that “reform is needed to create a surer climate for investment”.
Just this week, the FCA announced that it was considering giving lenders more time to respond to consumer complaints over motor finance after a landmark judgement, due to the likelihood of a “high volume” of complaints.
The dispute resolution rules which set out how firms and the FOS handle complaints, were last reviewed ten years ago, since then the landscape has changed with an increased levels of complaints.
The call for input is open until 30 January 2025 for firms, policymakers, consumers, academics, think tanks and industry bodies.
“We have seen how large volumes of complaints in particular areas can impact the effectiveness of the system,” said James Dipple-Johnstone, deputy chief ombudsman at FOS said.
“By further strengthening our work with the FCA and industry, we can identify and address these issues more promptly to ensure better outcomes for all,” he added.
Commenting on this move, Paul Harris, partner at law firm Osborne Clarke stated that “the financial services industry will be pleased.”
“What firms crave is certainty, and if changes as to how the FOS determines its cases can give greater certainty to firms whilst not reducing the level of protection it affords consumers, it could a be win-win situation, with the added bonus of reducing compliance costs,” he added.