The way the ombudsman service is funded was agreed back in 2000 - based on a compromise between the varying approaches used by our predecessor complaints schemes. We get our funding in two ways - through a levy paid by all retail financial businesses - and from case fees paid by businesses when we settle complaints about them (although currently we don't charge businesses for their first three cases each year).
In many ways, this method of raising our funding has served the financial services industry and the ombudsman well. It's simple to explain and relatively low-cost to administer. And it provides a degree of flexibility around volatile case numbers - coping sufficiently as we've grown from handling 25,000 complaints a year to ten times that number.
But there are challenges too. While the current arrangements take a 'one size fits all' approach - applying equally to all users from the largest financial group to the sole proprietor - our remit has changed and extended in recent years, and now covers a much wider and more diverse range of businesses.
The way we're currently funded has also made it difficult to manage the financial risks and cost pressures that we face in responding to volatile demand for our service. This has particularly been the case in relation to so-called 'mass complaints' like mis-sold payment protection insurance (PPI), which now make up over 50% of our cases (but five years ago accounted for just 2% of our workload).
In addition, case fees don't cover the increasingly important work we do - for example, on our consumer helpline and through our outreach and external liaison activities - to help resolve issues before they become formal, 'chargeable' complaints.
This is why, over the last few months, we've been talking with businesses and their trade associations to develop our thinking on new arrangements for case fees. We believe the new approach we're suggesting would be fair to all case-fee payers - and could help encourage greater efficiency in complaints handling.
For smaller users, we propose increasing the number of free cases from 3 to 25. This would mean that only 1% of financial businesses would pay any case fees at all. For the largest users (the ten or so financial groups that account for over 70% of our caseload), we propose a new group-account arrangement, which would develop over time to measure more accurately the total costs to the ombudsman of the work that each of these groups generates.
This is still only an outline proposal at this stage. Depending on the views of case-fee payers and other stakeholders, we would aim to introduce a new charging structure from April 2013. We will need to consult again on these funding proposals, as further details are finalised. I look forward to hearing from you about what you think.
chief executive and chief ombudsman
ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.
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