Financial Services and Markets Act 2000 (Ombudsman Scheme) (Fees) Regulations 2024
Baroness Blake of Leeds
That the Grand Committee do consider the Financial Services and Markets Act 2000 (Ombudsman Scheme) (Fees) Regulations 2024.
Relevant document: 2nd Report from the Secondary Legislation Scrutiny Committee
Baroness Blake of Leeds (Lab)
My Lords, these regulations are made under the powers in the Financial Services and Markets Act 2023. Noble Lords may be aware that the Secondary Legislation Scrutiny Committee raised this SI as an instrument of interest in its second report, published on 5 September. This statutory instrument will enable the Financial Ombudsman Service —also known as the FOS—to charge case fees to claims management companies and relevant legal professionals when they bring cases to it on behalf of complainants.
The Financial Ombudsman Service provides a proportionate, prompt and informal service to resolve disputes between consumers and financial services firms. It is designed as an alternative to resolving cases through the courts, which can be expensive for both firms and consumers and is a lengthy process that can delay redress. The Financial Ombudsman Service is cost-free to consumers and funded by a combination of an annual levy on firms and case fees charged to firms that are subject to complaints.
The FOS is designed to be an accessible service, and indeed the majority of consumers raise complaints directly with it. However, some consumers choose to use claims management companies or law firms to bring claims to the Financial Ombudsman Service on their behalf. Collectively, these are known as professional representatives. These professional representatives normally take a proportion of any compensation awarded as payment for their services. This can reduce a consumer’s redress by as much as 30%.
Currently, these professional representatives cannot be charged for bringing cases to the FOS, despite the fact that they gain an economic benefit from doing so. Although many of these professional representatives act responsibly, there is evidence that some firms are exploiting the cost-free service provided by the FOS to consumers by flooding it with templated and poorly evidenced complaints. This behaviour negatively impacts the ability of the FOS to resolve other consumer complaints promptly. It also has a significant cost to industry, as firms are required to pay a case fee of £650, regardless of whether a complaint is upheld against them.
The Government have also noted concerns that firms experiencing this treatment may feel pressured into settling claims early by offering an amount below the £650 case fee in order to reduce the overall cost to the firm, even where they feel the claim is without merit.
To address these exploitative practices, this instrument will enable the FOS to charge a case fee to professional representatives for bringing complaints on behalf of claimants. This will provide a financial incentive for those professional representatives to consider carefully the merits of any cases they are bringing on behalf of complainants and to avoid flooding the Financial Ombudsman Service with templated complaints. Charities bringing complaints on behalf of consumers are not included in this instrument and therefore will not be charged by the FOS and, of course, the FOS will remain completely free for consumers to access directly.
As it is already for financial services firms subject to complaints, the Financial Ombudsman Service will be responsible for determining exactly who is charged and the level of any fees. The FOS has consulted on its proposed detailed approach to charging fees to professional representatives in anticipation of this instrument. This proposed a fee of £250 to professional representatives for each case they bring. When the FOS finds in favour of the claimant represented by the professional representative, it has proposed that the fee will be reduced to just £75. In this way, it has sought to disincentivise bad behaviour, while minimising the impact of the changes on professional representatives bringing cases with merit. If this SI is approved, the Financial Ombudsman Service will confirm its final plans, having considered the responses to its consultation.
The approach taken through this SI ensures that the FOS will remain cost-free to consumers while ensuring that the poor behaviour of some professional representatives does not undermine the ability of the FOS to deal with consumer complaints promptly. I hope noble Lords will join me in supporting these regulations, I commend them to the Committee, and I beg to move.
Baroness Ritchie of Downpatrick (Lab)
My Lords, I take this opportunity to thank my noble friend the Minister for explaining clearly what this statutory instrument is about. I declare an interest as a member of the Secondary Legislation Scrutiny Committee. I have some questions, about which I have already alerted the Minister. I actually alerted my noble friend Lord Livermore, thinking he would be answering on this, but I think he has passed them on.
There is a concern that, while it is laudable that no charges will be involved for claimants who make direct contact with the Financial Ombudsman Service, which has proven to be an excellent service for people who have particular issues in the financial world, notwithstanding that, some people like the services of professional representatives. A recent survey found that 43% of people were likely to be vulnerable prior to financial scams—we are all beset by them—and 85% became vulnerable in the aftermath as the reality of the situation hits them and their mental health may deteriorate. Will the Minister outline the real reason for eradicating, in many instances, the middle person, the professional representative? That would be very useful.
As we know, all professional representatives are regulated either by the Financial Conduct Authority or the SRA. Claims management companies are explicitly forbidden by regulations from bringing cases that do not have “a good arguable case”, or that are “frivolous or vexatious”. Therefore, firms are required to learn from the FOS approach to ensure that they do not continue to submit cases with an unrealistic chance of success. So why is the FOS not pushing regulators to enforce this more? The FOS would be better highlighting this to the regulators, which have the power to take heavy action against these firms. The ombudsman has the power to reject poor-quality submissions. Why is it not using this to a greater extent against the 10 firms that are particularly clogging up the system?
Finally, could my noble friend the Minister advise, or come back by way of writing, on whether the Government intend to ameliorate the situation? Sometimes, people like the services of professional agents, notwithstanding their level of financial security, and would appreciate that, and they do not think that it is fair that the cost that has been levied on the professional claims person should be passed on to them.
The Earl of Courtown (Con)
My Lords, I welcome these regulations and appreciate the very full description of them that the Minister gave. As she said, they enable the Financial Ombudsman Service to amend its rules to charge case fees to claims management companies and legal professionals on behalf of complainants when a customer launches a complaint against a financial services firm.
On these Benches, we believe in the importance of fair and justified financial regulation and the ability for customers to issue a complaint against financial services firms when necessary. We recognise the benefit of this legislation, which seeks to address the economic benefit gained by intermediaries from bringing a case and the large volumes of poorly evidenced complaints submitted to the FOS.
We welcome the Government’s continuation of our work in which we introduced the Financial Services and Markets Act 2023, which enabled the Government to add to the list of persons to whom the FOS can charge fees. I would like answers to a couple of questions, but the Minister can write to me if need be. What measures are His Majesty’s Government taking to ensure that genuine and well-evidenced complaints continue to be submitted to, and heard by, the Financial Ombudsman Service? Can the Government confirm that this legislation will not result in increases in fees paid by consumers who have submitted a complaint?
I was interested in the points raised by the noble Baroness, Lady Ritchie, and look forward to hearing the Minister’s responses to them. As I said, we support these regulations, and I look forward to the response from the Minister.
Baroness Blake of Leeds (Lab)
I thank both my noble friend Lady Ritchie and the noble Earl, Lord Courtown, for their comments, in particular their close consideration of these draft regulations. It is important that everyone in the Committee has an opportunity to raise important points. I re-emphasise that this SI will play an important role in ensuring that the Financial Ombudsman Service can focus on promptly resolving consumer complaints and reduce the impact of spurious complaints on financial services firms.
I thank my noble friend Lady Ritchie for her detailed questions. I know from her comments earlier, before we came into this Committee, that her primary concern is for the consumer and to make sure that the necessary protection is in place. By way of reassurance, we are looking at the needs of vulnerable people, in particular, to make sure that they will not be disadvantaged by this amendment; that is the crux of what we need to address today.
I re-emphasise that the Government are clear that all consumers should be able to access the FOS without the need for professional representative support. Serious consideration has been given to that while developing this policy. The final outcome, as I mentioned earlier, is that charities, family members and advisory organisations will not be charged for this service; that is an important consideration. Another aspect here—it is reassuring, I hope—is that the FOS has a dedicated accessibility team as well as the additional support team, working specifically to ensure that complaints with additional needs are added. I hope that that goes some way to providing the reassurance sought.
The other question is: should the Financial Conduct Authority not be doing more to regulate professional representatives effectively in the first place? It is a very reasonable question. The Financial Conduct Authority and the Solicitors Regulation Authority play an important role in regulating, respectively, claims management companies and law firms. The Government strongly support the relevant regulators in taking robust action to tackle poor claims management behaviour wherever it arises.
There is an important point here that needs to be firmly pointed out. We re-emphasise: all consumers can access the service free of charge and without the need for any professional representative support. Where consumers choose to use a professional representative, there are rules in place to limit the amounts that these firms can charge. The FCA, which regulates claims management companies and professional representatives, and the Solicitors Regulation Authority, which regulates legal professionals, already restrict the fees that a professional representative can charge to consumers through their fee cap rules. The FCA has agreed that any fee paid by professional representatives to the Financial Ombudsman Service will be included in this cap; this will prevent fees being passed on to consumers in cases where the representative is charging at the maximum level, which the FOS understands to be the case already for most professional representatives.
If there is a feeling that I need to follow up in writing, I will of course do so, but, with those closing comments, I hope that we can move forward.