Financial Inclusion and Markets Centre (FIMC) recently submitted a response to the Financial Ombudsman Service (FOS) and Financial Conduct Authority (FCA) consultation CP26/9** Modernising the Redress System. The submission can be found here: CP 26-9 FIMC response 110526
Summary of our submission
We fully support the goals of ensuring that consumer harm is identified and addressed more effectively, and consumers get access to redress more swiftly. We are also very supportive of FOS initiatives to make the redress system more inclusive and accessible. But, we are very concerned about the potential cumulative impact of the proposals in the recent consultations produced by HM Treasury and FCA/FOS. The combined effect of the proposals is likely to weaken consumer protection, risk compromising the independence of FOS, and undermine the ability of consumers to obtain due redress.
An independent FOS provides important checks and balances within a tri-partite system of legislators (who determine the overall direction of policy), regulators (who produce rules and guidance that interprets and codifies the high level intent of legislation, and enforces compliance with those requirements), and Ombudsmen schemes which should provide an independent assessment of what is ‘fair and reasonable’ when resolving disputes between consumers and firms.
FOS should not be bound, limited, or unduly influenced by, either directly or indirectly, by FCA rules and industry codes of practice and should have the independence to determine what it considers to be fair and reasonable taking into account FCA rules. The proposed amendment to the fair and reasonable test is likely to compromise the FOS ability to provide a truly independent assessment on what is fair and reasonable.
We have written elsewhere about our concerns regarding the impact of the secondary growth and competitiveness objective imposed on regulators, which is becoming a de facto primary objective. This risks weakening consumer protection and rights to redress, and compromising the operational independence of the FCA and FOS. The fact that the FCA and FOS write in the joint Foreword that the proposals will help firms ‘to invest, grow and compete’ reinforces our concerns. It should not be the role of regulators and, certainly not Ombudsmen schemes, to help the firms they are supposed to regulate to grow. The regulatory system should be judged on how well it ensures regulated industries serve the interests of the economy and society, not on how well the regulatory system serves the interests of regulated industries.
Moreover, FCA and FOS talk about working ‘at pace across the whole of the regulatory system to support the Government’s broader reforms’ throwing into sharp relief how slowly the legislative and regulatory system tends to be in responding to consumer detriment in financial services.
In our response to previous consultations, we said that unless robust governance measures and safeguards are added, the key proposals in the set of consultations on the fair and reasonableness test, wider implications issues, and mass redress events, and referral mechanisms would give firms and industry lobbies greater opportunities to: delay or obstruct consumer access to redress and/or reduce firms’ liability for redress and influence the direction of financial services policy and regulation eg. on the interpretation of the FCA’s Consumer Duty; and would bring FOS closer within the FCA’s orbit. This would undermine the concept of an Ombudsman service being separate from regulators and making independent decisions, and weaken the tripartite system of checks and balances.
We are concerned about the overall tone in this latest consultation. While most of the specific proposals make sense in terms of improving operational efficiency and would be unlikely to undermine consumer access to redress with the right safeguards in place, many of the proposed measures are about enabling the FOS to dismiss complaints from consumers. In other words, these are intended to ‘discipline’ the behaviours of consumers engaging with the redress system. We agree that, within reason, measures should be taken to prevent abuse of the redress system by consumers behaving irresponsibly or unreasonably. Unreasonable and irresponsible behaviours harm other consumers. But, the cumulative effect of these latest proposals would be to tilt the redress system even more in favour of the financial services industry. Yet, there are no corresponding new measures aimed at preventing firms from abusing the redress system.
Moreover, while it is encouraging that FCA/FOS talk about developing appropriate safeguards and consumer support mechanisms to accompany proposals such as the new registration stage, we will only be able to assess the potential impact of these proposals on consumer access to redress once we see the details of these safeguards and support mechanisms.
There is a risk that the proposed pre-registration stage could deter consumers, especially vulnerable consumers, from taking a complaint to the FOS or engaging effectively with the process. The proposed approach could end up transferring more of the responsibility for ensuring that a case is presented and managed properly to consumers making the complaints. In other words, a key part of the process could end up more like a ‘self-service’ system rather than a ‘supported-service’ system. If the FCA/FOS insists on this pre-registration stage, and for the supporting information to be more complete at this stage, then the FCA/FOS should either place more responsibility on firms to ensure the correct information is presented to FOS or FOS should ensure there is sufficient support in place and act proactively to help consumers engage with the pre-registration stage.