Beneath the surface of the FCA/FOS ‘modernisation’ attempt

Friday’s joint call for input from the Financial Ombudsman Service (FOS) and Financial Conduct Authority into how they can work together to modernise the redress system appears to be an attempt to put on a united front despite underlying tensions.

It claims that, “The current redress framework works well for individual customer complaints about specific issues” and any “challenges” are confined to “mass redress events” (a term upon which it later seeks input as to what it actually means).

Despite the call for input’s title, it is difficult to reconcile the concept of modernisation with some of the issues upon which it seeks consultation

If not provocative, then the underlying assumption that all is otherwise working well portrays a lack of awareness.

Whether justified or not, some believe an informal process of dispute resolution, with wide and subjective decision criteria and which is able to depart from the law, is only appropriate for disputes involving relatively modest amounts; certainly not for the current limit of £430,000.

Despite the call for input’s title, it is also difficult to reconcile the concept of modernisation in its accepted sense with some of the issues upon which it seeks consultation. One would have expected mention of some areas relating to the role of technology in improving FOS processes and workflows.

Some matters in respect of which input is requested are generic in nature and not peculiar to mass redress events.

Some may interpret this as poorly-coded language that the FOS needs to fall into line with FCA’s thinking

Issues relating to the role of claims management companies, a firm’s perceived advantages to delay providing redress in respect of a patently valid complaint and the need to review dispute resolution (DISP) rules in the FCA Handbook after a 10-year hiatus, apply to single focused complaints as well as to mass redress issues.

Chapter 3.11 seeks input into a suggestion that the circumstances under which an ombudsman’s final decision, following that of an investigator, can be requested is to be very much restricted.

At present, there is a clear distinction between the role of an investigator and that of an ombudsman. What is mooted will be the binding nature of a determination of someone who is not an ombudsman.

A key underlying issue driving the consultation is how to deal with matters where the FOS and FCA do not agree on “certain FCA requirements”. Some may interpret this as poorly-coded language that the FOS needs to fall into line with the FCA’s thinking.

It appears a desired outcome from this process may be that the FCA is able to exert more influence on the FOS than it currently does

Back in 2012, there was a (high level) attempt to amend section 225 Financial Services and Markets Act 2000 (FSMA) by obliging the FOS to “…act in a way which is compatible with the FCA’s strategic and operational objectives and regulatory principles”.

That proposed amendment did not make it to the statute books, having been resisted in a House of Lords debate.

A principal point made was that it was for the FCA to interpret its own objectives and that it was not “…desirable that [FOS] should be put into the position of having to interpret them”.

As is well known, section 228 FSMA provides that complaints referred to the FOS and within its jurisdiction are to be “determined by what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case”. That fair and reasonable basis is then developed further within DISP 3.6 – in particular, the factors to be taken account of in DISP 3.6.4R.

FCA has a track record of being inconsistent in the interpretation of its own rules – the extent of the obligations of Sipp operators being a recent example

It appears a desired outcome from this process may be that the FCA is able to exert more influence on the FOS than it currently does as to the application and interpretation of its rules.

If so, then this will presumably be within the confines that the FOS can still uphold a complaint against a firm despite it having complied with all regulatory rules and guidance. FCA has a track record of being inconsistent in the interpretation of its own rules – the extent of the obligations of Sipp operators being a recent example.

On a positive note, a review of DISP is a welcome opportunity to tackle many issues both of a jurisdictional and operational nature that need review. These include the gap between being a consumer and a micro-enterprise for some business-related investments of personal pension funds under the eligibility criteria of DISP 2.7, as well as the lack of longstop in the DISP 2.8 time limits.

The response deadline of 30 January 2025 shows an intention to move forward expeditiously. Some of the call for input ideas would need changes to FSMA as well as DISP.

Stuart Brothers is a consultant at Punter Southall Law