Baroness Blake of Leeds (Lab)

My Lords, these regulations are made under the powers in the Financial Services and Markets Act 2023. Noble Lords may be aware that the Secondary Legislation Scrutiny Committee raised this SI as an instrument of interest in its second report, published on 5 September. This statutory instrument will enable the Financial Ombudsman Service —also known as the FOS—to charge case fees to claims management companies and relevant legal professionals when they bring cases to it on behalf of complainants. The Financial Ombudsman Service provides a proportionate, prompt and informal service to resolve disputes between consumers and financial services firms. It is designed as an alternative to resolving cases through the courts, which can be expensive for both firms and consumers and is a lengthy process that can delay redress. The Financial Ombudsman Service is cost-free to consumers and funded by a combination of an annual levy on firms and case fees charged to firms that are subject to complaints. The FOS is designed to be an accessible service, and indeed the majority of consumers raise complaints directly with it. However, some consumers choose to use claims management companies or law firms to bring claims to the Financial Ombudsman Service on their behalf. Collectively, these are known as professional representatives. These professional representatives normally take a proportion of any compensation awarded as payment for their services. This can reduce a consumer’s redress by as much as 30%. Currently, these professional representatives cannot be charged for bringing cases to the FOS, despite the fact that they gain an economic benefit from doing so. Although many of these professional representatives act responsibly, there is evidence that some firms are exploiting the cost-free service provided by the FOS to consumers by flooding it with templated and poorly evidenced complaints. This behaviour negatively impacts the ability of the FOS to resolve other consumer complaints promptly. It also has a significant cost to industry, as firms are required to pay a case fee of £650, regardless of whether a complaint is upheld against them. The Government have also noted concerns that firms experiencing this treatment may feel pressured into settling claims early by offering an amount below the £650 case fee in order to reduce the overall cost to the firm, even where they feel the claim is without merit. To address these exploitative practices, this instrument will enable the FOS to charge a case fee to professional representatives for bringing complaints on behalf of claimants. This will provide a financial incentive for those professional representatives to consider carefully the merits of any cases they are bringing on behalf of complainants and to avoid flooding the Financial Ombudsman Service with templated complaints. Charities bringing complaints on behalf of consumers are not included in this instrument and therefore will not be charged by the FOS and, of course, the FOS will remain completely free for consumers to access directly. As it is already for financial services firms subject to complaints, the Financial Ombudsman Service will be responsible for determining exactly who is charged and the level of any fees. The FOS has consulted on its proposed detailed approach to charging fees to professional representatives in anticipation of this instrument. This proposed a fee of £250 to professional representatives for each case they bring. When the FOS finds in favour of the claimant represented by the professional representative, it has proposed that the fee will be reduced to just £75. In this way, it has sought to disincentivise bad behaviour, while minimising the impact of the changes on professional representatives bringing cases with merit. If this SI is approved, the Financial Ombudsman Service will confirm its final plans, having considered the responses to its consultation. The approach taken through this SI ensures that the FOS will remain cost-free to consumers while ensuring that the poor behaviour of some professional representatives does not undermine the ability of the FOS to deal with consumer complaints promptly. I hope noble Lords will join me in supporting these regulations, I commend them to the Committee, and I beg to move.