Insights ¦ Evolving our funding model

Key Take Aways

1. The Financial Ombudsman Service is consulting on further differentiation of case fees, proposing options by case stage and outcome to better align costs with work intensity.

2. A primary recommendation is charging by case stage, with lower fees for early resolution processes such as proactive settlement, and higher fees at later, more complex stages.

3. Differentiation by case outcome is also under consideration, with higher fees for upheld cases where the complaint is found in favour of the consumer, particularly expanding to non-represented cases.

4. The organisation aims to implement these fee structures from April 2027/28, following a digital system modernisation, which would support transparency and efficiency.

5. Billing processes are set to be simplified by moving from free case allowances to a monetary annual allowance, with a proposed £2,000 threshold for firms and professional representatives.

6. The proposal includes expanding quarterly billing in advance to respondent businesses and professional representatives with at least 25 cases annually, reducing administrative burden and improving cashflow predictability.

7. The organisation intends to reduce the dispute window for case fee queries from 12 to 6 months post-invoice, increasing clarity and administration efficiency.

8. The organisation has retained its principles that the funding model should be fair, transparent, cost proportionate, simple, sustainable, and without bias towards particular outcomes.

9. The levy structure remains, with industry-wide levies based on case volume forecasts, but case fees are a significant component of industry contribution.

10. The current flat case fee (£650) is being reconsidered, with options to introduce variable fees based on case stage and outcome, aiming for revenue-neutral pricing.

11. The consultation highlights risks, such as potential incentivisation for early settlement or bias, which will need mitigation strategies and oversight.

12. The future funding model seeks to balance fairness, simplicity, and responsiveness to industry feedback, supporting the organisation’s core functions amidst evolving market conditions.

Key Statistics

• The organisation resolves approximately 200,000 disputes annually.

• Most firms (7 in 10 who have complaints referred) currently pay no case fee as they receive fewer than three cases per year.

• The current maximum case fee for firms is £650.

• In 2024/25, the total cost savings for eight firms in the group fee arrangement were approximately £2 million.

• Under the proposed quarterly in advance billing, around 95% of firms would transition to this method.

• The proposed monetary allowance for free case credits is set at £2,000 per year.

• Case differentiation options include fees of £690 at later stages, with discounts of 70% for early settlement.

• For case outcome differentiation, fees could be as high as £815 for complainant-favour cases and as low as £620 for non-upholdings.

• Dispute window for case fee queries will be reduced from 12 months to six months under the new billing system.

• The forecast threshold for quarterly billing in advance is set at 25 cases per year.

Key Discussion Points

• The adoption of case fees differentiated by case stage aims to incentivise early complaint resolution and reduce costs.

• Risks associated include incentivising firms to settle early, potential bias in outcome-based fees, and fluctuations in revenue.

• Differentiation by case outcome could raise concerns about bias but is mitigated by governance controls and non-rewarding caseworker incentives.

• The recommendation to differentiate primarily by case stage is seen as balancing complexity and transparency.

• Transitioning from free cases to a monetary allowance simplifies internal processes and ensures fairness.

• Expanding ‘billing quarterly in advance’ aligns invoicing with actual case volume, reducing administration and improving cashflow management.

• The organisation’s principle of ‘polluter pays’ is under consideration, with fees being aligned to the work involved rather than outcome.

• The new models are designed to improve financial sustainability, transparency, and encourage positive firm and consumer behaviour.

• Implementation depends on modernising billing and technology systems; this is forecast for 2026/27 alongside regulatory changes.

• Industry feedback will shape final fee structures, with a balanced approach to fairness, simplicity, and risk management.

• The proposals underscore the importance of data-driven decision-making and oversight to minimise bias and incentivisation.

• The consultation demonstrates a clear shift towards a more cost-reflective, flexible, and modern funding approach for the Financial Ombudsman Service.