The Financial Ombudsman Service anticipates its total projected income to be £240m.
This figure is based on FOS’s proposed level of resolved cases and is lower than this year’s forecasted income of £252m.
This forecast was published today (16 December) in FOS’s 2023/24 plans and budget consultation paper that closes on 31 January 2023.
This difference from the initial forecast comes as a result of FOS’s plans to change its funding model.
The Ombudsman states: “A key driver for making changes to our funding model is to ensure we are able to recover our costs more sustainably.
“However, due to the current economic climate and the pressures that financial businesses are under, we are proposing to freeze our Compulsory Jurisdiction (CJ) levy and case fees at the same rates as 2022/23, with no inflationary increase.”
The FOS explains that it will be able to hold its price points at 2022/23 levels due to its current reserve levels.
However, the Ombudsman states it will look at increasing its case fees and levies using a pre‐defined inflationary rate.
The FOS is also looking to standardise the calculation for unit costs (the average cost of resolving a complaint).
Based on this measure, the reported unit cost has risen year on year from £1,062 in 2021/22 to £1,131 in 2022/23.
FOS chief executive and chief ombudsman Abby Thomas says: “We know we need to reduce our unit costs further, and we have set out an overview of how we will achieve this in our Action Plan, published in December 2021.
“The plan includes various initiatives designed to improve customer and business satisfaction while driving more efficiency and value for money in our operations, reducing our overall cost base and cost per case.”
As it stands, the FOS is holding over six months of operating capital reserve. In last year’s plans and budget cycle, the organisation reduced its reserves policy to three months of operating costs. It also expected to have 3.4 months of operating costs in its 2022/23 budget expectations.
This surplus is due to higher income and lower costs. It results in a forecast of net surplus for the year of £5.6m compared to a budgeted deficit of £48.9m. FOS is expecting to end 2022/23 with income £13m in excess of what it had set out in its budget.
In addition to that, the FOS anticipates resolving 196,000 complaints in 2023/24.
It expects the cost-of-living crisis to trigger a significant increase in complaints. However, it stated that it has not seen any yet.
The FOS writes: “We are mindful that customers are more likely to complain during times of financial uncertainty, such as the Covid‐19 pandemic. Factors exacerbate this, such as the growth of fraud and scams.
“At such times, customers and businesses are also less tolerant of loss, which can prolong the dispute resolution process.
“Given this uncertainty, we have already started working with stakeholders, particularly large banks and insurance companies, to understand their complaint forecasts.
“We anticipate a lag in increased volumes, as there is a delay between when an issue or dispute first arises and when a complaint is referred to our service.
“As part of this consultation, we would welcome any additional views on the likely causes and impact of the rising cost of living.”
The FOS is also unsure of how the Financial Conduct Authority’s new Consumer Duty will impact the level of complaints.
It states: “The FCA’s new Consumer Duty intends to drive up standards and reduce the number of complaints reaching us.
“Nevertheless, we recognise that some industry stakeholders have expressed concerns that complaints may rise.
“There will be a need for continued engagement with firms and the FCA on how the Consumer Duty impacts complaint volumes and our approach to complaints.”
In addition, the Ombudsman highlights that the Financial Services and Markets Bill could directly impact its service and the way it works with the wider regulatory framework.
FOS addesthat the bill could impact it through other changes that will affect the obligations of financial businesses and the FCA.
The Financial Services and Markets Bill is currently going through parliament.
