Potential amendments to the Financial Ombudsman Service’s redress system

In November, a joint consultation on Modernising the Redress System was published by the Financial Ombudsman Service (“FOS”) and the FCA.

The consultation states that the reasoning behind it relates to the challenges that arise where large numbers of complaints are made about the same issues, referred to as “mass redress events”.  This sometimes occurs where professional representatives (“PRs”) submit large numbers of complaints on behalf of consumers. A mass redress event can be triggered by differing views of how the FCA rules apply, and they are more likely where there is uncertainty around interpretation of regulation, this is a risk, for example, in relation to the Consumer Duty. 

A number of issues arise when such events happen, for example firms are not able to deal with complaints within time limits, resulting in large numbers of cases being referred to the FOS. The consultation also states that consumer complaints might be an inefficient way to deal with these large-scale issues, and there is a risk that the FCA takes a different approach with its regulatory solution to the outcomes that the FOS has reached on individual complaints.

Some of the options for change on which the consultation seeks input are discussed below:

• One option is potentially reintroducing a two-stage process for resolving complaints. Under a previous system, firms could send a complainant an initial response to their complaint within eight weeks, with a second final response required only if the complainant indicated within eight weeks that they remained dissatisfied. This meant that complainants could appeal a decision to the firm itself before going to the FOS. The two-stage process was abolished in 2011, as the FCA said it allowed some firms to deal with claims at the first instance to a low standard, assuming only a small number of consumers would take it further. However, the consultation suggests reinstating this two-stage process may allow firms to resolve things more quickly than if they were to be referred to the FOS, if there were appropriate safeguards and/or if the Consumer Duty requirements are sufficient on this issue.
• Presently, complainants can request a final FOS decision if they disagree with the preliminary assessment of their complaint by the FOS’s investigator. It is said in the consultation that very few complaint outcomes change between preliminary assessment and final determination, as the investigator will usually follow an approach which is consistent with previous FOS practice.  Therefore, it is suggested as a possibility that complainants should only be able to request a final determination in certain circumstances, such as if new evidence is submitted, there is a novel issue in dispute, or a factual inaccuracy in the preliminary assessment. 
• As data demonstrates that the vast majority of complaints from PRs are not upheld, and that the position is worse for those using PRs than for consumers complaining directly to the FOS, it is suggested that there could be different processes for represented and non-represented complaints. One issue is claims from PRs not being well-evidenced in mass redress events, and it is suggested that the FOS could have the power to reject complaints from a PR collectively without individual consultation, where a PR has sent poorly particularised complaints in bulk.
• A Financial Ombudsman is required to consider the merits of cases and decide what is “fair and reasonable”. They must take into account relevant law and regulations, regulator’s rules, guidance and standards, relevant codes of practice and (where appropriate) what the Financial Ombudsman considers to have been good industry practice at the relevant time. The consultation asks for any other factors that should be taken into account when deciding what is fair and reasonable. This is in light of concerns that some industry stakeholders have suggested that the rules imply that good industry practice is less relevant than other factors.
• It is suggested that DISP 3 could be amended to widen the grounds on which the FOS can dismiss a complaint without consideration of the merits, such as where an industry-wide consumer redress scheme has been implemented. It is also suggested that the DISP rules could be amended to allow the FOS to dismiss complaints by referral to the FCA for regulatory action, or to be considered by law enforcement where they are better able to resolve the matters in dispute.
• Another proposal is introducing a long-stop limitation period for complaints (similar to the limitation period that exists for litigation) so that there is a time limit beyond which a complaint can no longer be made. Currently, complaints must be made within 6 months of the firm’s final response, and within 6 years from the event being complained about or (if later) three years from when the customer knew or reasonably ought to know they had cause to complain.

The consultation also sets out some potential longer-term reforms such as improving cooperation between the FOS, the FCA and stakeholders, or pausing complaints handling requirements whilst the FCA carries out work on how best to resolve the issue involved in the mass redress event.

The consultation closes on 30 January 2025.