Authority figure in city discusses potential weakening of banks' ombudsman office
Britain's Government Takes Aim at Bank Ombudsman in a Regulatory Shift
Emma Reynolds, minister for the city, has hinted that the government could make meaningful changes to the Financial Ombudsman Service (FOS), stripping it of some powers in an attempt to alleviate regulatory pressures on financial services.
Reynolds addressed a gathering of bankers and investors, suggesting the impending conclusion of a review on the FOS might bring alterations to its current authority. The FOS's primary function is to resolve disputes between consumers and financial institutions.
Her remarks followed whispers of ministerial plans to transfer final decisions on consumer compensations to the Financial Conduct Authority (FCA) through a new "referral" system that would enable financial services to challenge FOS judgments.
Reynolds, speaking at an event organized by industry group TheCityUK, articulated that the FOS holds a pivotal role in offering unbiased, independent dispute resolution, a vital aspect for consumers and firms alike. However, she posited that the FOS should not operate like a de facto regulator, arguing for change aimed at garnering greater stability and clarity for all involved parties.
Politico reported that potential alterations to the FOS and complaints systems could materialize as early as Chancellor Reeves' Mansion House speech on July 15.
Power Shuffle: FOS to FCA
The UK government's impending Financial Services Growth and Competitiveness Strategy will outline plans to boost the UK's retail investing culture and offer support to City banks, in conjunction with Reeves' speech.
A number of City firms embroiled in the motor finance scandal voiced their dissatisfaction with the FOS's handling of complaints, insisting that it wielded too much power in the process.
At present, firms can only resort to judicial reviews—costly endeavors"—as a means to contest FOS decisions. The FOS could face adjustments such as a reduction in their six-year complaint time limit against banks, and modifications to legislative obligations might be on the horizon, according to Politico.
Earlier in the same conference organized by TheCityUK, FCA CEO Nikhil Rathi advocated for shedding regulatory red tape to promote more risk-taking. He proposed wasteful talk about dampening UK business prospects could constitute a self-fulfilling prophecy.
"Now is the time to reset our mindset, shed British modesty, and celebrate our strengths," Rathi declared.
Rathi delineated several changes he envisioned for mortgage market rules, banking, and data provision, hinting at enhanced transparency for hedge funds and strengthened enforcement rules rather than creating new ones.
"Our regulatory framework must nurture innovation with safeguards. So, we're being daring to endorse change, innovation, and growth, but let us not confuse such a shift in risk appetite with abandoning integrity," Rathi concluded.
Insights:
- The proposed changes to the FOS and its powers include the implementation of a new appeals mechanism that would offer banks a way to challenge FOS decisions and have the final say with the FCA being given the power to potentially overrule those decisions[5].
- The FOS is considering modifications to compensation interest rates, with the proposed change being to link the interest rate to 1% above the Bank of England base rate, rather than the current practice of paying 8% above the compensation[2][4].
- The UK government's Financial Services Growth and Competitiveness Strategy is anticipated to shift power from the Financial Ombudsman Service (FOS) to the Financial Conduct Authority (FCA).
- The impending regulatory changes could include the introduction of a new appeals mechanism, allowing banks to challenge FOS decisions and have the final say with the FCA.
- The proposed modifications to the FOS may also involve adjustments to complaint time limits against banks and changes to legislative obligations.
- In response to these changes, the FCA CEO, Nikhil Rathi, called for reducing regulatory red tape to encourage risk-taking in business, emphasizing the importance of maintaining integrity while fostering innovation and growth.
