Regulatory update: FOS annual review 2017 / 18 and future funding

Posted: 6th June 2018

Background

On 30th May 2018, the Financial Ombudsman Service (FOS) published its annual review 2017/18. The review looks back at the different types of complaints the FOS have received over the past 12 months, uphold rates and emerging trends.

The FOS is approaching its 20th anniversary and so has additionally included a section on what has and hasn’t changed over that time. As expected, one of the major issues on the FOS radar for the next three years will be how it is funded post PPI. At present, the FOS is funded 90% by case fees and 10% through the firm levy. 20 years ago, when the FOS was first established, it was primarily funded by the levy. The FOS is consulting with firms on what might be an appropriate future funding model.

Key Findings from the review

The FOS received:

• 1,456,396 enquiries,
• 339,967 new complaints
• resolved 400,658 complaints (55% PPI / 31% banking and credit).

PPI:

• PPI accounts for 186,417 complaints and increase of 10% from the previous year.
• The total number of PPI complaints the FOS have adjudicated is now 1.6million.
• 36% of the 250,000 complaints considered in 2017 / 18 were up held (excluding Plevin cases)
• CMCs account for 80% of these claims down from 85% in previous year.
• Out of the 140,000 FOS cases backlog, Plevin accounts for 100,000 of those cases.

Banking and credit

104,214 new complaints received which is up by 4% from the previous year, the FOS upheld 31% of complaints received.

Changes in new complaints against 2016 / 17 data;

• 146% increase in home credit
• 73% increase in hiring, leasing and renting
• 64% increase in pay day loans
• -15% decrease in current accounts
• -42% decrease in packaged bank accounts

Insurance

36,703 new complaints received which is a decrease of 4% from the previous year, the FOS upheld 30% of complaints received.

Most complained about insurance products;

• Motor insurance 11,887
• Buildings insurance 4,726
• Travel insurance 3,176

The FOS flagged two themes, telematics and customer loyalty. The shift in digital and innovation services in how services are provided could help people manage their money. However, it is noted that the FOS has seen examples of people’s expectations not being met by new technologies.

The FOS also highlighted that with over one million UK car insurance policies using telematics technology it had ‘heard from a growing number of people who believed the data their ‘black box’ had collected wasn’t right’

Pricing was the second theme highlighted. The focus was on customer loyalty in insurance and the FOS stated that it was getting 200 complaints about insurance pricing every month.

Investment and Pensions

The FOS noted that it has received 12,632 new complaints in relation to investments and pensions which was a decrease of 13% compared to the previous year. The FOS upheld 28% of complaints such complaints.

There was also a 37% increase in SIPP complaints noted this year, which now makes them the most complained pension product the FOS encounter.

Vulnerability

The FOS acknowledged that 17,256 new complaints were related to payday loans, an increase of 64%. The statistics also show that 1 in 4 new complaints, excluding PPI involved a consumer credit product. They have highlighted concerns around some lenders who aren’t doing enough to ensure people’s borrowing is sustainable – or aren’t responding constructively to their customers’ concerns.

Vulnerability is highlighted as a key theme in the Chief Executive’s report:

“Over recent years we’ve highlighted the rising volume of people telling us they’ve had trouble after borrowing money. Complaints about consumer credit rose by a further 40% in 2017/18, following an 89% rise in the previous year”. The issue of affordable lending is also mentioned’ we’re concerned that some lenders aren’t doing enough to ensure people’s borrowing is sustainable or aren’t responding constructively to customers’ concerns.’ 

Next steps

Over the next 18 months, the FOS will consult with firms on what an appropriate future funding model would involve. Firms should also reflect on the findings contained within the report and considerations for firms are outlined below.

Consideration for firms

The FOS annual review highlights some key trends which firms should be reviewing to understand where they can do more to support customers. To no surprise, vulnerability and high cost credit emerged as strong themes. Firms within this sector should consider reviewing the findings and the trends identified to understand where they currently sit and where they could be doing more for their customers.

Vulnerability remains a clear cross sector priority. Firms should benefit from reviewing their existing policies and procedures, ensuring a fair customer journey when supporting complainants in vulnerable customers. Price and responsible lending also features heavily within the annual report. Firms should equally be considering how they can demonstrate ‘value’ as part of their product offerings and ensure that pricing structures do not adversely impact customers who may find themselves in a vulnerable circumstance and whom may not be rewarded for longstanding loyalty. Furthermore, being able to evidence responsible lending practices will be vital given the surge in complaints noted within the credit sector, much of which is being driven by claims management companies.

As expected, overall, PPI remains the key driver of complaints for impacted firms. Given the impending time bar in August 2019, firms should be actively reviewing target operating models to ensure PPI remediation programmes can be suitably concluded.

The FOS has provided a useful infographic for ‘their year at a glance’ which maybe of interest (see pages 2 and 3).