| tariff
and case fee information |
| |
| 7.1
|
funding
2004/05 |
| |
Our funding requirement
in 2004/05 will be £45.0m, £30.5m of which we will raise
from case fees and the remaining £14.5m through the annual
levy. |
| |
|
| 7.2 |
surplus |
| |
We propose to refund part of the surplus
of £4.0m that had accumulated in the period to March 2003. In
line with the policy agreed with the FSA, we propose to return to
participating firms any surplus in excess of 5% of the annual expenditure.
The funding requirement to be raised by the annual levy will therefore
be reduced by £2.0m to £12.5m. |
| |
income
analysis |
budget
2003/04
£m |
forecast
2003/04
£m |
budget
2004/05
£m |
levy |
11.9 |
12.5 |
12.5 |
case
fees |
22.7 |
28.8 |
30.5 |
total |
34.6
 |
41.3
|
43.0
|
|
| |
|
| 7.3 |
levy/case
fee split |
| |
Feedback from last year’s
consultation indicated that firms would prefer us to raise a greater
proportion of our income from case fees rather than from the levy.
We therefore proposed a budget split - the ratio of income from
case fees in relation to income from levy - of 64:36. The forecast
outcome for 2003/04 is now for a 69:31 split and, before deducting
any credit from the projected surplus, the proposals below for 2004/05
would leave this ratio largely unchanged. This outcome is in line
with our aim of ensuring that the split broadly allows us to recover
our case-handling costs through case fees, and our overhead costs
through the levy.
|
| 7.4 |
case
fees |
| |
On this basis,
we are proposing that the case fee should remain unchanged at £360,
and that we will not charge firms for the first two of their cases
that we deal with (as long as their annual levy has been invoiced
and paid). We estimate that the additional sum we would need to
collect from the levy as a result of this measure is £1.2m.
The “special” case fee (mainly relating to complaints
about small businesses and complaints about firms that have resigned
from the Financial Ombudsman Service) will be reduced by £50
from £600 to £550.
|
| |
The advantages of our leaving
the level of the case fee unchanged are that: |
|
There is no need for discussion
with firms about the year in which the case should have been closed,
and the level at which the charge should be set. |
|
|
If complaint levels fall,
there is less risk of our having to increase the case fee in 2004/05,
which would result in a perceived price “increase”. |
|
|
Firms do not generally complain
about the actual amount of the case fee – only that they have
to pay, whatever the outcome. |
|
|
Although firms of independent
financial advisers (IFAs) have more concerns about the impact of case
fees than larger firms do, a recent survey showed that fewer than
a quarter of IFAs saw the case fee as a significant business problem,
while half said it was not a problem at all. (Source: Money Marketing,
11 December 2003). |
|
|
Reducing the case fee would
mean raising a greater proportion of the funding by the annual levy,
which is neither the expressed preference of most firms, nor in line
with our policy objective. |
|
|
An analysis of the case fees
charged in our first full year of operation (2002/03) showed that
fees were charged to only 1,500 of the approximately 8,000 firms then
covered by our compulsory jurisdiction - while all 8,000 firms paid
a general levy contribution. Of the firms that were charged case fees,
nearly half had only one or two complaints during the year that resulted
in a case fee. It appears that among the 8,000 firms covered by the
ombudsman service, some 750 are of a size that means they regularly
produce three or more complaints a year. We have termed these 750
or so firms "regular users", while the remainder of firms
are "occasional users". For "regular users", being
covered by the ombudsman service and paying a significant number of
case fees are facts of business life, for which the firms can make
appropriate business plans. However, "occasional users"
may go from year to year without having any complaints about them
referred to the ombudsman service. |
|
|
|
The advantages of our not
charging for the first two cases are: |
|
Potentially, all participating
firms would receive a benefit. "Regular user" firms would
not be charged for the first two cases, while "occasional users"
would have the reassurance that the unlikely occurrence of one, or
even two, complaints against them in a year would not impact disproportionately
on them. |
|
It should reduce the sense
of unfairness that has been felt in the past by some firms who have
chosen to settle cases with the consumer, even where they have felt
there was no justification, simply in order to avoid a case fee. |
| |
|
| 7.5 |
The levy funding requirement
for 2004/05 will be £14.5m, an increase of 22% over 2003/04
(10% of this increase relates to the cost of offering firms two “free”
cases). We propose to use £2.0m of the surplus from previous
years to lower the budget proposals for the levy funding requirement
by reducing the tariff rates uniformly over all the industry blocks.
This would then give an overall increase of 5% in the tariff rates.
|
| |
|
| 7.6 |
annual
levy |
| |
The FSA is
consulting in CP208 on plans to change the way in which the general
levy is invoiced and collected. It is proposed that the FSA should
assume responsibility for this invoicing and collection. This change
would necessitate changes to DISP 5. The proposed amendments are
set out in Annex 5 in CP208. These amendments will be determined
by the FSA and approved by the Financial Ombudsman Service. The
revised invoicing and collection arrangements will not apply to
the voluntary jurisdiction or to case fees.
As a result of the proposed amendments
to DISP 5, it has been necessary to make some consequential amendments
to DISP 4.
These are set out in appendix D of this
plan & budget. DISP 4 sets out the standard terms of
the voluntary jurisdiction of the Financial Ombudsman Service. The
Financial Ombudsman Service is empowered by schedule 17, paragraph
18(3), to make the rules regarding payments by firms that participate
in the voluntary jurisdiction of the Financial Ombudsman Service.
The FSA is required to approve these rules. |
| |
|
| 7.7 |
overall impact on
firms |
| |
The proposals for the levy
(reproduced in appendix A), on which the FSA is presently consulting
in CP208, would have the following impact on firms, assuming constant
business year-on-year. The methodology for allocating expenditure
to blocks, consulted on in CP74, is based on the number of case-handling
staff required to handle the complaints expected in that block. The
increase in the tariff rates for advisory firms therefore reflects
the increase in the workload relating to mortgage endowment complaints,
compared with the workload assumed in the budget for 2003/04. |
|
A bank or building society
with 2 million accounts would pay a levy of £13,800 in 2004/05,
compared with £25,000 in 2003/04. |
|
A general insurer with £100
million of relevant premium income would pay a levy of £8,100
in 2004/05, compared with £11,600 in 2003/04. |
|
A life office with £200
million of relevant premium income would pay a levy of £18,600
in 2004/05, compared with £18,400 in 2003/04. |
|
An adviser who holds client
money with 50 approved persons would pay a levy of £3,250 in
2004/05, compared with £1,750 in 2003/04. |
|
A three-partner firm of IFAs
(independent financial advisers) not holding client money would pay
a levy of £90 in 2004/05, compared with £75 in 2003/04. |
| |
|
| 7.8 |
unit cost |
| |
We expect the unit cost to
fall to £489 in 2003/04 - £52 below budget - because of
the increased volume of cases. However, this cost will rise to £507
in 2004/05, because of the full-year impact of the additional casework
staff recruited in 2003/04, together with additional accommodation
costs. |
| |
|
| 7.9 |
mortgage and insurance
intermediary firms |
| |
We
remain uncertain about the volume of complaints that we will receive
in 2004/05 involving mortgage and insurance intermediaries. The
fact that we do not know how many of these firms will join our voluntary
jurisdiction, before they are required to join our compulsory jurisdiction
later in the year, makes this particularly difficult to estimate.
We have therefore concluded that it is not sensible to calculate
a levy for these firms this year. Instead, we propose to charge
them the full case fee of £550 for each case closed in 2004/05.
This proposal will be included in the consultation mentioned at
paragraph 3.3. However,
we also propose that, as for other firms, the case fee should apply
only to the third and any subsequent complaints about them that
are closed during a year. |
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