UK announces overhaul of financial compensation rules

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Britain's system for handling financial services complaints will be overhauled to avoid more costly mass redress events in the latest sign of how politicians are pushing to ease the regulatory burden on the City of London.

The plans announced by the Financial Ombudsman Service and Financial Conduct Authority on Friday come hours after Prime Minister Rachel Reeves called on the pair on Thursday to improve historic market practices and the way they handle mass bailout cases.

The financial services governance reforms were part of a wider overhaul of municipal regulations outlined by the Prime Minister in his speech at the annual Mansion House dinner. She says the rules, written after the 2008 banking collapse, have gone too far and stifle growth and risk-taking.

The FOS and FCA on Friday outlined several potential changes to the financial rescue system, including giving firms longer time to respond to customer complaints and reducing the scope for appeals against ombudsman decisions. They said they would receive industry feedback on their idea and submit a proposal in the first half of next year.

The two organizations have already received attention for handling complaints regarding the rapidly increasing suspicion of misselling of automobile finance. This has disrupted the supply of credit to car buyers, risked the FOS being overwhelmed and led the FCA to suspend its complaints procedures.

Analysts have warned that the controversy over car finance charges could cost banks billions of pounds in bailing out customers, bringing back memories of the $50 billion they paid out over the Payment Protection Insurance scandal.

David Postings, chief executive of lobby group UK Finance, welcomed plans to reform the municipal system, saying the FOS was likely to encroach on the powers and rules of other regulators, making the regulatory environment more complex and costly. [and] We have been asking for this issue to be looked at for a long time.

Most of the recent complaints against the FOS for car finance have been brought through claims management companies, which have stood out for their role in handling consumer groups' cases in return for compensation cuts and for their role in triggering the PPI scandal.

The FOS said on Friday it would begin charging fees for all cases brought by claims managers and other professional representatives. They must pay $250 for every case they bring to the FOS after the first 10 each year, and this amount will be lowered to $75 if the FOS finds in their favour. Individual consumers can still access FOS for free.

James Dipple-Johnstone, deputy ombudsman at the FOS, said seeing how high the volume of complaints in a particular area could affect the effectiveness of the system. By strengthening our collaboration with the FCA and industry, we can identify and resolve these issues more quickly, ensuring better outcomes for everyone.

FOS handles more than 200,000 cases a year where complaints raised by consumers are rejected by financial service providers. By June, the number of consumer claims had increased by 50%.

The regulator said it was appropriate for the FCA to provide its interpretation of the rules to the FOS before it presides over cases with wider implications. But they added that more formal intervention powers for the FCA risked undermining the financial ombudsman's legal independence and ability to deal with cases quickly.

The Prime Minister has written to the FCA and the Bank of England's Prudential Unit urging them to do more to support economic growth and improve the competitiveness of the financial services sector.

Reeves acknowledged that regulators face difficult trade-offs, but said they must simplify the administrative burden on businesses as much as possible while maintaining high regulatory standards and a reputation as a responsive and nimble regulator.

In her speech on Thursday, she highlighted plans to reduce the burden of the regulatory certification regime for bank staff below senior management, shorten the deferral period for banker bonuses, encourage more financial advice and guidance and simplify the FCA's rulebook. .

Financial trade groups welcomed the proposal, while also suggesting there was room for reform in other areas.

Miles Celic, CEO of TheCityUK, said the intention was clear and welcome. He added that more work needs to be done to modernize Britain's capital markets to make them competitive, and called for action to digitize sovereigns and expand stock market participation.

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