About Innovate Finance

Innovate Finance is the independent industry body that represents and advances the global FinTech community in the UK. Innovate Finance’s mission is to accelerate the UK's leading role in the financial services sector by directly supporting the next generation of technology-led innovators. 

The UK FinTech sector encompasses businesses from seed-stage start-ups to global financial institutions, illustrating the change that is occurring across the financial services industry. Since its inception in the era following the Global Financial Crisis of 2008, FinTech has been synonymous with delivering transparency, innovation and inclusivity to financial services. As well as creating new businesses and new jobs, it has fundamentally changed the way in which consumers and businesses are able to access finance. 

When engaging on policy and regulatory issues we aim to reflect the UK FinTech ecosystem and specifically the needs of start-ups, scale-ups and high growth enterprises.

Introduction

Innovate Finance welcomes the opportunity to respond to the Financial Ombudsman Service (FOS) consultation on Charging Claims Management Companies and other professional representatives. We support the proposal outlined by the FOS to introduce case fees for claims management companies (CMCs) and other professional representatives. We consider it a welcome first step towards the wider introduction of differentiated case fees for the way in which the FOS imposes charges. 

Our members recognise that fair and effective forms of alternative dispute resolution in the financial services sector are necessary and important for ensuring good consumer outcomes. This requires consumers to be able to access services provided by the FOS free of charge and without the need for CMCs and professional representatives. Nevertheless, consumers should indeed have the option of making an informed choice to employ CMCs or professional representatives when seeking to raise a dispute with the FOS. 

However, as the FOS has acknowledged, the behaviour of some CMCs and professional representatives have delivered outcomes that are contrary to the FOS’s purpose which is to provide “fair, proportionate, prompt and informal resolution of disputes between consumers and financial services firms”. For example, the FOS notes in this consultation that many of these companies “send in significant volumes of cases with little prospect of being upheld or which are poorly presented” whereby “fewer than 25% result in a different outcome for the complainant than they have already been offered by the respondent firm”. 

This finding is coherent with the point most recently made in the Innovate Finance response to the FOS consultation on its 2024/25 Plans and Budget where we repeated industry concerns about the conduct of CMCs. We shared that our members remain concerned by the potential for CMCs to latch on to firms that are soon to be brought within the FOS jurisdiction and wider UK regulatory perimeter. For instance, with the continued significant media interest in Buy-Now Pay-Later (BNPL) firms, there is a risk of a distorted and disproportionate escalation of complaints by CMCs which will ultimately impact consumers and damage their confidence in the system once BNPL is brought into the regulatory perimeter.

The introduction of case fees will therefore serve as a deterrent to CMCs from using the threat of FOS case fees against firms in their pursuit for higher settlements, thereby rationalising CMC activity. This would not only balance the impact and cost of CMC referrals to both the FOS and firms, but also the impact of FOS jurisdiction on new and innovative products. 

In preparing this high-level response, we have engaged with a cross-section of our membership base. We respond to this consultation thematically on issues most relevant to our members. The themes are as follows: 

• The £250 case fee for CMCs and professional representatives is too low;
• Retaining £75 from CMCs and other professional representatives in any event is too low; and 
• Support for the case fee to CMCs and professional representatives being chargeable upon referral to the FOS.

We would be pleased to discuss our response with colleagues from the FOS and/or facilitate discussions with our members and the wider FinTech community.

The £250 case fee for CMCs and professional representatives is too low 

Our members support the FOS proposal to charge CMCs and professional representatives a case fee that is payable as soon as they refer a case to the FOS. We also appreciate that the proposals outlined in charging CMCs and professional representatives can be considered a first step towards the wider introduction of differentiated case fees which is a position that Innovate Finance has consistently advocated for.

We accept the position of offering CMCs and professional representatives three free cases per financial year, given that is the same amount that the FOS currently offers firms. However, the FOS proposal to set the case fee for CMCs and professional representatives at £250 is simply too low. £250 is significantly lower than the £650 case fee that respondent firms already have to pay whenever a claim is brought against them, regardless of the outcome. 

Under proposals outlined by the FOS, even if the claim brought by a CMC does not receive an outcome favourable to the CMC’s client, respondent firms will also still have to pay a case fee amounting to £475. While we recognise that this is a £175 reduction from the £650 respondent case fee, £475 remains significantly higher than the £250 case fee for CMCs. As a result, our members do not believe that this serves as a sufficient deterrent against bad practices by irresponsible CMCs. It is also not a fair apportionment of financial responsibility. 

Moreover, we reiterate that the £650 case fee (or £475 for unsuccessful claims brought by CMCs) is especially concerning for BNPL firms as they seek and prepare to enter the FOS’s jurisdiction once they are brought into the regulatory perimeter. As we have previously shared with the FOS, case fees as they currently stand are disproportionate, given that the average value of BNPL consumer transactions is less than £65. 

In our response to the FOS 2024/25 Plans and Budget consultation, we called for the FOS to “introduce a high fee level” to reduce CMC incentives, given their behaviour in some cases such as using the threat of FOS case fees against firms in their pursuit for higher settlements. 

Our members therefore suggest that at this stage, the case fee for CMCs and professional representatives should be set at £650. This high fee level is fair because it is the same amount that firms have to pay the FOS when a claim is brought against them. Even as case fees imposed on firms and CMCs should be the same, our members would also caution the FOS against making £650 the default case fee indefinitely. 

We recognise and welcome that the FOS is taking a first step at differentiation by looking at whether case outcomes are in favour of the CMC’s client or respondent firm. Nonetheless, there is a pressing need to look at introducing a differentiated case fee structure across the board. This should take into consideration the complexity of the case and the original sum of money involved to ensure proportionality, as we have shared with the FOS in previous consultation responses. The FOS must reconsider the case of differentiation by repeating its analysis and modelling exercise, taking into account business models such as BNPL, which have yet to be brought into the regulatory perimeter.

With the differentiation of case fees according to complexity and original sum of money involved, there will no longer be a need to impose a blanket case fee of £650, or a reduced sum based on the binary choice of whether the case outcome is favourable to the CMC’s client or respondent firm.  

Retaining £75 from CMCs and other professional representatives in any event is too low

We support the position that the FOS will still maintain part of the case fee incurred by CMCs and professional representatives in any event. It is only right that CMCs and professional representatives pay a fee for using the FOS’s service because their business model profits from the service provided by the FOS (which consumers can assess for free independently). 

However, as with our general position regarding the proposed £250 case fee for CMCs and professional representatives, retaining £75 is in any event too low. While we agree that a case fee on CMCs and professional representatives will encourage them to ensure that “the merits of cases are properly established in advance and presented with the appropriate documentation” where fewer FOS resources will be expended on cases that will be dismissed, our members are concerned that £75 would not be a sufficient deterrent against bad practices. 

This is clear as in any case, respondent firms will still incur a case fee of either £650 or £475. Increasing the retained fee for CMCs and professional representatives will better rationaloise CMC activity. The increased caution on which CMCs and professional representatives approach cases could also encourage consumers to refer cases directly to the FOS. This could play a part in raising awareness that consumers can bring cases to the FOS without charge. 

We therefore suggest that until there is a wider differentiated case fee structure, the FOS should charge CMCs a £650 case fee which is to be retained in full if the case outcome does not favour their client, and retain £475 in the event the case outcome favours their client. Depending on the outcome of the case, the corresponding amount that respondent firms have to pay should be reduced accordingly to remain within range of the estimated marginal cost per case. 

This is a fair and proportionate approach in apportioning financial responsibility because £475 is essentially a £175 case fee reduction, which is the same reduction being proposed for respondent firms when a case outcome favours them. A high case fee and retaining a high amount of the case fee will contribute to the cracking down of questionable cases being brought to the FOS “for profit” and “at no cost” by CMCs and other professional representatives.

Support for the case fee to CMCs and professional representatives being chargeable upon referral to the FOS

We agree with the proposal that CMCs and professional representatives are charged as soon as they refer a case to the FOS. This should be £650 rather than £250 as proposed by the FOS. Our members recognise the FOS’s rationale that it has had to manage high volumes of cases without warning from CMCs and professional representatives which has impacted resources. We consider that incurring a fee immediately would be most effective in rationalising CMC activity. 

Our members therefore do not support the alternative which is to levy the fee at another stage of the case handling process such as at the conclusion of the case. 

[ENDS]