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The UK’s financial ombudsman will be overhauled to stop it acting like “a quasi-regulator”, the City minister said on Thursday, opening the door to the potential introduction of a new appeal process for companies to challenge its decisions.
Emma Reynolds said the conclusions of a review she was leading into the Financial Ombudsman Service would be announced next month as a critical part of the government’s financial services strategy.
A plan being considered as part of the review is to hand greater control over the FOS to the Financial Conduct Authority by giving companies the ability to appeal to the watchdog when ombudsman decisions go against them, according to people briefed on the matter.
“The FOS, of course, plays an important role in providing consumers and firms with straightforward, independent dispute resolution, which is critical,” Reynolds told TheCityUK conference in London on Thursday.
“But it cannot, and it should not act as a quasi-regulator. Changes are needed to provide greater predictability and clearer expectations on redress for all parties.”
The proposed move to curb the powers of the FOS is part of a wider ministerial push to boost economic growth by easing regulation. It follows the government’s decisions to axe the UK payments watchdog in March and to oust the chair of the competition regulator in January.
Scrutiny of the FOS has intensified after its rulings in favour of UK consumers complaining about alleged mis-selling of car finance, which threatens to become one of the country’s biggest financial scandals, costing lenders as much as £44bn in redress.
Chancellor Rachel Reeves said last year that the relationship between the FOS and FCA would be reformed to improve how they handled “historic market practice and mass redress events”.
The ombudsman is already enduring a period of upheaval after Abby Thomas abruptly resigned as its chief executive in February with a permanent replacement still to be found, with its chair Baroness Zahida Manzoor also planning to leave in August.
While the FCA appoints the ombudsman’s board, the FOS has significant leeway to make its own decisions on the more than 200,000 cases a year that are referred to it by people who are unhappy with how their complaint has been dealt with by their financial services provider.
Allowing companies to challenge a FOS decision that they believe contradicts FCA rules by referring it to the watchdog would significantly undermine its independence.
“We agree that now, after 25 years of operation, marks a timely opportunity to review the system as a whole,” the FOS said. “That is why we are working closely with the FCA and HM Treasury to ensure the system — including the vital role our service plays within it — is fit for the future.”
Reeves plans to set out a financial services strategy at her set-piece Mansion House speech in the City to be held on July 15.
Nikhil Rathi, chief executive of the FCA, told TheCityUK conference that it had made nearly 50 proposals in response to the request by Prime Minister Sir Keir Starmer for it to do more to support growth and competitiveness.
“More is coming,” Rathi said, adding it would soon launch a consultation on “reducing frictions in securitisations” as well as on reforming listing prospectus rules to make it easier for companies to raise capital.
Rathi also said an announcement was “imminent” on how the FCA would reform the rules around financial advice to make it easier for companies to provide guidance to consumers on how to invest without being subject to onerous regulations.