Lawyer: FOS drifting closer to regulation

Author: Rahul Odedra
IFAonline | 08 Mar 2012 | 23:15

Categories: Regulation| Regulation| Regulation

Topics: Financial Ombudsman Service| Financial Conduct Authority| FSA| Reynolds Porter Chamberlain


The Financial Ombudsman Service (FOS) will drift closer to becoming a regulator under a proposed memorandum of understanding (MoU) with the Financial Conduct Authority (FCA), according to a legal expert.

The draft MoU was issued last month, building on the existing MoU between the FOS and the financial services industry.

Although the new agreement is largely similar to the previous MoU, Robbie Constance, a partner at Reynolds Porter Chamberlain, said there were subtle differences which could change the relationship between the organisations.

One new clause he pointed to appears to put more onus on the Ombudsman to share information with the FCA, saying it "must disclose information" if it thinks this "might be of assistance to the FCA in advancing one or more of the FCA's operational objectives".

Constance said: "I think it does increase the obligation on the Ombudsman to report and sees it becoming more of a wing of the regulator."

Another important difference between the two documents, according to Constance, is with the wording of a clause which allows the regulator to request specific information about cases from the Ombudsman.

The 2007 MoU says that if requested by the FSA to provide information about "actual or contemplated regulatory action", FOS has agreed to provide "the number and types of complaints handled; and specific initial and final decisions".

In contrast, the draft MoU says the FOS "may give the FCA (for the specific firm concerned) information that is relevant to the discharge of the FCA's statutory functions."

Beyond the new MoU, Constance has also pointed to the plans to publish Ombudsman decisions as another concern, warning it could empower claims management companies and convince businesses to settle a claim unnecessarily.

"There will no doubt be claims management companies seeking to embarrass firms into a settlement," he said.

"Even if the Ombudsman upholds the adjudicator decision, the fact that the decision is published could prove to be embarrassing to firms."

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