27 March 2014
Each year in January and February the Financial Ombudsman Service consults its stakeholders on its plans and budget for the coming financial year.
The consultation paper we published in January 2014 explained our proposed plans for the 2014/2015 financial year, against the background of what had happened in the first nine months of the financial year 2013/2014.
We invited comments from stakeholders on these plans. We summarise here the feedback our stakeholders gave us on each of the themes we set out in our consultation paper. We also explain how we have decided to proceed in the light of this feedback.
We asked stakeholders about our proposals to:
All stakeholders – except claims-management companies – supported these proposals. The claims-management companies argued that it was too soon to cut back on income, and that we should instead retain the PPI supplementary case fee in order to invest more heavily in dealing with the stock of PPI cases.
A number of stakeholders also commented on the level of our reserves. Although none thought that we ought to return any reserves to the industry in 2014/2015, they did recognise the possibility that – at a later date, when PPI cases significantly decreased – we might have excess unspent reserves.
A majority of stakeholders thought that, if that happened, the excess should be re-invested in developing the service further. The others thought that the excess should be re-distributed in a fair way among financial businesses.
In the light of this feedback, we have gone ahead with our funding proposals. We agree that, depending on how our PPI caseload develops, it is possible we will end up with reserves higher than we need. In that case, we will discuss with the FCA and with financial businesses how best to deal with this.
We asked our stakeholders what volumes of new cases they expected us to receive, and what they thought about the assumptions we had made about the numbers of new cases.
Those stakeholders who responded believed our assumptions for non-PPI cases were reasonable – and suggested some areas where they thought changes in caseload might happen. A number of larger businesses also helpfully shared their own detailed caseload assumptions with us.
On the basis of this feedback, we have continued to use the caseload assumptions we originally made for non-PPI cases – for 120,000 new cases in 2014/2015. But we will keep these assumptions under review as the year progresses. And we will continue to engage with financial businesses in particular, to ensure that our plans (and theirs) remain up-to-date.
We also asked our stakeholders specifically about the number of complaints about PPI they believed we would receive – and whether our plans for dealing with these were realistic.
Many stakeholders thought that we may have under-estimated the number of new PPI cases we were likely to receive in 2014/2015 – and thought our plans needed to reflect this. They pointed in particular to the significant uncertainties there were around PPI – for example, about the level and nature of the activities of claims-managements companies and about whether a “time bar” might be introduced for these complaints.
On the basis of this feedback – and taking into account the change in the profile of PPI cases we have received since we consulted in January and February 2014 – we have revised our estimate of the number of new PPI cases we are likely to receive in 2014/2015 from 150,000 to 200,000. We agree that there is considerable uncertainty about this forecast, and our plans reflect this.
Taking into account the feedback we have received from those who responded to our consultation paper, we have set – with the approval of the Financial Conduct Authority (FCA) – an operational income budget for 2014/2015 of £251.7 million.
This budget will be funded by a combination of levies and case fees. As we originally proposed, the overall levy for the “compulsory jurisdiction” has been frozen at £23.3 million.
The levy for the “voluntary jurisdiction” has been set at £0.4 million. We also expect around £0.7 million in case fees in relation to the “voluntary jurisdiction”.
The FCA will be consulting separately on the allocation of the levy for the “compulsory jurisdiction”.
As proposed, the standard case fee will remain at £550, and the PPI supplementary case fee will no longer be charged.
The number of “free” cases, where no case fee is payable, will remain at 25.
And we have – as proposed – extended the group-account fee to a further four financial business groups.
|compulsory jurisdiction levy||23.3|
|voluntary jurisdiction levy, release of deferred consumer credit levy and other income||1.8|
|total operating income||251.7|
|deferred income release||67.4|
|staff and staff-related costs||219.9|
|premises and facilities||26.0|
|bad debt write-off||0.8|
|total operating costs||277.4|
|total operating surplus/deficit||(25.7)|
|estimated number of new cases||320,000|
|estimated number of resolved cases||440,000|
|unit cost (£)||629|
In the light of the feedback we have received (see above), we are now planning on the basis that we will receive around 200,000 cases about PPI during 2014/2015, rather than the 150,000 we assumed when we consulted – although there is considerable uncertainty about this.
As a result of this, our budget now assumes higher expenditure to deal with this caseload, primarily on staff and related costs.
We invited comments from stakeholders on our priorities for the coming year. Stakeholders generally supported our plans, and highlighted four priorities in particular:
We welcome this feedback and have considered these points in developing our plans for the year ahead. This includes commitments to:
The following organisations responded to our consultation paper. A further five organisations, who are not listed, also provided responses but requested that these be kept confidential for commercial reasons.