Proposals for the future funding of the Financial Ombudsman Service (Fos) have been outlined in a joint discussion paper by the Financial Services Authority (FSA) and the Fos.
Currently, more than 70% of the Fos’s funding comes from the fees it charges firms for considering complaints, while the remainder comes from annual fees payable by all firms calculated according to their role in their industry sectors.
The case fee for IFAs is currently £360 but the first two cases for each firm per year are free.
The discussion paper sets out the following options for future funding:
- Option A: retain the existing arrangements;
- Option B: a modification of the existing arrangements. Case fees would be payable for the third and subsequent cases per firm per year and the case fee would be set each year at the rate necessary to cover case-related costs (80%) – around £405. Annual fees would cover the remaining 20% and would produce a slightly lower annual fee than at present;
- Option C: annual fees only, no case fees. Annual fees would be about four times higher than current fees;
- Option D: case fees only, no annual fees. Case fees would be payable for the third and subsequent cases per firm per year and would produce a case fee of about £505.
The paper then sets out a more radical approach to funding by suggesting a cut-off (at five, 10 or 24 cases per year) to deal differently with larger-user and smaller-user firms.
Under the model there would be no case fee payable for cases up to the cut-off point, after which a case fee of around £480 would be payable, and there would be a small flat-rate annual fee per permission or per firm.
Options under this model are:
- Option E: case fees would be payable for the sixth and subsequent cases per firm per year, and a flat rate annual fee per permission would be around £110;
- Option F: case fees would be payable for the sixth and subsequent cases and a flat-rate annual fee per firm would be about £175;
- Option G: case fees would be payable for the 11th and subsequent cases and a flat-rate annual fee per permission would be about £145;
- Option H: case fees would be payable for the 11th and subsequent cases and a flat-rate annual fee per firm of about £230 would apply;
- Option J: case fees would be payable for the 25th and subsequent cases and a flat-rate annual fee per permission of about £205 would apply; and
- Option K: case fees would be payable for the 25th and subsequent cases per firm per year and a flat-rate annual fee per firm would be around £325.
The FSA says options E to K address the concerns of small firms, by reducing the threat of having to pay case fees, and of large firms by making their funding of Fos proportionate to the number of cases they produce.
It believes options E to K also simplify matters by removing the need for fee blocks and tariff rates.
After evaluating responses to the discussion paper, the FSA and the Fos will publish a consultation paper in Autumn 2007.
The proposals in the paper only relate to the Fos's compulsory jurisdiction, according to the Fos, despite meeting the costs usually associated with past Fos funding.
In the future, there will also be a "voluntary jurisdiction" of the Fos and consumer credit jurisdiction, following publication of the Consumer Credit Act 2006, will be dealt with and funded separately at a later date once the CCA 2006 is active.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
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