The introduction of a ten-year ‘long stop’ is among the plans to modernise the financial redress system.
The proposal, to require complaints to the Financial Ombudsman to be brought within a decade from when they occur, has been largely praised by the sector.
Until now, there has been no absolute time limit, or long stop.
Ash Daniells, legal director at Kennedys, said the proposals would be welcomed across the market and provide greater legal certainty for firms and their insurers.
The Financial Conduct Authority (FCA) and Financial Ombudsman Service (FOS) are seeking the changes to stop the redress system becoming overloaded and delaying compensation.
The FCA said that the majority of complaints are resolved by firms and the redress system works well for individual cases that come to the FOS.
But it added that high volumes of complaints on specific or novel issues can jam the system.
The changes, it believes, will help firms identify and resolve issues before these complaints escalate.
The consultation includes plans to adapt the FOS’ ‘fair and reasonable’ test and give the FCA more flexibility to manage mass redress events.
This includes pausing complaints handling without industry consultation.
It would also allow firms and complainants to refer an issue to the FCA for clarity on its rules before the FOS issues a final decision.
The proposals include improving how the FCA and FOS work together to ensure consistency in the interpretation of regulations.
It is also proposing clearer guidance for firms on reporting issues to the FCA sooner, alongside good practice examples to help identify and resolve complaints.
Finally, it wants to see changes to the way the Financial Ombudsman processes complaints so they are well-evidenced and ready before an investigation begins.
Is it time to revive the longstop debate?
The FCA’s deputy chief executive Sarah Pritchard said: “When something goes wrong, it is right that people are compensated.
“But a lack of certainty in the financial redress system can hold back investment and innovation.
“Our changes will help create a system that is more predictable for firms and gives consumers quick and fair compensation where they’re owed it, supporting UK growth.”
James Dipple-Johnstone, interim chief ombudsman at the FOS, said: “These reforms mark a significant step in modernising the UK’s redress system, making it more agile and responsive, and a much better fit for today’s economy.
“Our changes will bring consistency and predictability for businesses and consumers, enabling us to better focus on our core purpose – resolving individual disputes quickly and with minimum formality.”
Simon Harrington, head of public affairs at PIMFA, said: “These new proposals for how FOS operates represent a significant step in the right direction.
“They maintain consumer protection while also providing firms with certainty and clarity to invest, grow and innovate.
“The government’s decision to retain the ‘fair and reasonable’ approach, while aligning FOS closer with the FCA is, on balance, the right one and something we have argued for.
“This will maintain the underlying principles of the FOS as a quick, simple and free disputes service while bringing greater certainty to firms who have the FCA handbook as a reference point.”
The changes come as the FOS proposes to further modernise its processes by, later this summer, consulting on the introduction of different levels of case fees for financial services firms, depending on the circumstances of a complaint,
This it believes will make the system fairer and support early resolution.
The FOS has also confirmed that it will be changing the interest rate it applies to some awards it directs businesses to pay, from 8% to track the Bank of England’s base (average) rate plus 1%.
