PIMFA has today issued its response to HM Treasury’s consultation on the review of the Financial Ombudsman Service (FOS). PIMFA supports the reforms’ direction, but believes that further clarity will be required where FOS is required to exercise judgement to truly inspire industry confidence.
The review seeks to ensure the FOS continues to provide a fair, free, and accessible service for consumers while addressing long-standing industry concerns about consistency and alignment with FCA rules.
Simon Harrington, Head of Public Affairs at PIMFA, says: “The Financial Ombudsman Service plays a vital role in giving consumers confidence to engage with financial services. We welcome the government’s proposals to reform the fair and reasonable principle in order to align FOS determinations more closely with FCA rules. This should provide firms with greater clarity, certainty and confidence going forward. However, for wealth and advice firms, we retain concerns about how effective these proposals will be given they still allow FOS to exercise judgement outside of the rigid parameters of FCA rules.
“Without further adjustment to the proposals – to ensure FOS gives full and balanced consideration to the evidence provided in all circumstances of any case – there remain too many opportunities for it to exercise subjective judgement. Whilst not a criticism, it is simply true that many FOS caseworkers are not qualified to the same standard as professional advisers, creating uncertainty about how technical evidence will be assessed consistently. This is particularly true in the case of assessing suitability. Under the proposed new rules, a firm could undertake an extensive, Consumer Duty-aligned assessment of the client’s attitude to risk and recommend a course of action understood and agreed. Yet, under the ‘fair and reasonable’ test, the FOS could still determine that the firm’s judgement was wrong based on a subjective view of the same evidence. This does not represent meaningful progress.”
Other key points raised by PIMFA as part of its consultation response include:
- Alignment with FCA rules: PIMFA supports the principle that firms acting in compliance with FCA rules should be considered to have acted fairly and reasonably, but calls for DISP 3.6.4 to be amended so FOS applies rules rather than just taking them into account, thus reducing uncertainty for firms.
- FOS as a quick and accessible service: PIMFA acknowledges the FOS’s foundational role as a simple dispute resolution service, but notes that potential compensation of up to £445,000 creates tension between speed and risk for firms, particularly for complex or long-term advice cases.
- Referral to FCA or courts: PIMFA welcomes proposals allowing firms to request FCA views on rule interpretation and for FOS to refer inappropriate cases to courts, arbitration, or other complaint schemes.
- Transparency: PIMFA encourages more transparency around FOS decisions, including the publication of quarterly thematic reports alongside a reduced set of anonymised case outcomes, to help firms understand and learn from trends.
- Independence: PIMFA supports maintaining FOS operational independence while encouraging closer alignment with the FCA to provide consistency without undermining consumer trust.
- Better use of existing powers: PIMFA encourages the FOS to make better use of the oral hearings process and, in particular, the use of subject matter experts where complex cases arise.
Simon Harrington adds: “Overall, the package of reforms is positive and largely addresses longstanding industry concerns. Yet significant uncertainties remain, particularly regarding the treatment of complex complaints. Addressing these issues will be crucial if the reforms are to truly support firms to grow and innovate without undue risk. With some refinements – particularly around the application of rules to complex complaints and evidence weighting – these changes could strengthen consumer confidence while supporting firms to grow and innovate in a predictable regulatory environment.”
PIMFA’s consultation response is available in full here.
