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Reform of FOS funding delayed

The FSA has delayed proposals to reform the funding of the Financial Ombudsman Service due to “significant volatility” in its case numbers.

Advisers were hoping for a firm commitment from the regulator for a significant reform of FOS funding.

Aifa is calling for firms to be allowed 10 “free” cases a year compared with the current two, with a flat annual fee of around 230 levied on all firms and a case fee of 480 charged after the 10th complaint.

But the FSA says the FOS is about to experience significant volatility in case numbers for a number of reasons, including a greater than anticipated decline in the number of mortgage endowment cases.

The FSA says: “It is not possible to model with any degree of certainty how significant changes at this stage would affect both the financial stability of the FOS and any alternative distribution of costs among firms.

“So the FSA and FOS do not believe this is a suitable time to implement any radical changes to the funding of the FOS.”

The FSA’s feedback statement, released last week, said there was some appetite in the industry and other stakeholders for change.

It says there is a lot of support for increasing the number of “free” cases and for the case fee to fund a greater proportion of FOS expenses.

The FSA says it will assess the scope exists for moving towards this direction when agreeing the FOS’s budget for 2008-09 towards the end of this year.

The feedback paper acknowledges the split in responses from different sectors. Some, such as advisers, strongly support an increase in the number of “free”cases while others, such as general insurance brokers, are concerned this would drive up their annual fee.

Aifa deputy director general Fay Goddard says: “We are disappointed the FSA felt the need to defer restructuring for the reasons given. There certainly seemed to be strong support for the proposals we wanted. We will continue to lobby for the changes that we believe need to be made.”

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