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.  We are the industry body for innovative and disruptive firms across all FinTech including payments, open banking, consumer and SME lending, digital assets, challenger banks, financial appsand digital wallets.

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 the government, 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 its 2026/27 Plans and Budget. 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. We are broadly supportive of the key funding principles, efforts to transform the service (e.g. improved timelines for case resolution and digital transformation of the service through initiatives such as Ombudsman Connect) and attempts to achieve greater cost efficiency. The 2026/27 Plans and Budget must ensure that the FOS can continue to evolve over time as appropriate and ensure that there are no unintended consequences for small and innovative businesses and consumers.

Innovate Finance and our members appreciate the continued engagement and dialogue with the FOS, and we look forward to building on this. We value the effort that the FOS has taken to meet with us at the highest levels and seek information to improve understanding about sectors about to enter within the FOS jurisdiction. We are also awaiting the outcome of the consultations on reviewing the FOS by HM Treasury^[1] and "modernising the redress system” by the FCA and FOS^[2], which we responded to.

In preparing this high-level response, we have engaged with a cross-section of our membership base including all the major deferred payment credit (DPC) providers, or previously more commonly known as Buy-Now Pay-Later (BNPL), in the UK, credit information service providers, challenger credit rating agencies and digital challenger banks. We respond to this consultation thematically. The themes are as follows:

• Maintaining reduced levy
• Proposed case fee level
• Impact on new market entrants and existing start-up and scale-up FinTech firms; and
• Charging claims management companies (CMCs)

Our four main asks of the FOS based on the themes above are as follows:

1)     Consider the proportionality of case fees imposed on firms.

2)     Address the impact of the FOS’s funding model on new market entrants, and start-up and scale up firms, particularly the proposal to raise case fees to £680.

3)     Maintain the £650 case fee for firms until a differentiated case structure is established.

4)     Charge CMCs a £650 case fee just like firms until a differentiated case structure is introduced.

Delivering in these areas would contribute to supporting competitiveness, growth and innovation whilst also providing better and more consistent outcomes for consumers. 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.

Maintaining reduced levy

We disagree with the decision to increase the compulsory jurisdiction (CJ) levy by £16m to £86m. We supported^[3] the maintained reduced levy in the last FOS budget, and while we understand the reasoning behind the need to increase the levy, we urge the FOS to consider the impact of its proposal on smaller firms and FinTechs.

The CJ levy has a bigger impact on smaller firms and FinTechs, who operate on tighter margins than incumbent firms. By increasing the CJ levy, alongside the increase in case fees, the FOS is

increasing cost burdens faced by the UK’s smaller financial institutions whereby resources could have otherwise been spent on creating innovative products and growing their firms, in the interests of consumers and the UK economy. This puts them at a competitive disadvantage to larger firms and stifles their ability to deliver innovation to the market.

Proposed case fee level

We are disappointed to see the FOS’s decision to increase case fees to £680 per case, which does not maintain the previous reduction in case fees from the previous two budgets. We believe that £680 is a disproportionate amount to be applied to every case. We believe that case fees require reform to be more fair for firms and consumers alike.

We once again note that we welcome the FOS’s desire to introduce differentiated case fees in 2027, even as we hoped that the FOS could have acted sooner on differentiation. However, we consider the FOS’s approach to differentiated case fees a missed opportunity. This is because the FOS’s approach abandons the “polluter pays” principle, allowing firms responsible for poor outcomes to avoid paying higher costs than firms who were acting appropriately. In this scenario, firms who are found to have mistreated consumers pay exactly the same fees as firms who are found to have acted appropriately with their customers.

We also believe that FOS should introduce a differentiation in case fee which recognises the original sum of money involved in the matter. Given that the FOS expects up to 2,000 cases from the DPC sector in the year, and that the average DPC transaction is £65, we believe that a case fee of £680 is disproportionate and unfair.

Impact on new market entrants and existing start-up and scale-up FinTech firms

While we are broadly supportive of the key funding principles, efforts to transform the service (e.g. improved timelines for case resolution and digital transformation of the service through initiatives such as Ombudsman Connect) and attempts to achieve greater cost efficiency, we remain concerned about the impact of the FOS’s proposals on start-up and scale-up firms. This is especially the case for firms that are yet to be brought within the FOS jurisdiction and are offering innovative products and services in a safe and responsible way for the benefit of consumers and businesses.

Without a proportionate and bespoke model applied by the FOS, the continued FOS funding model and ‘weaponisation’ of case fees by some complainants and their representatives threatens the financial resilience of firms despite the changes proposed as part of plans to modernise the redress system. We would urge the FOS to consider this in its approach to plans and budget decision-making.

Charging claims management companies (CMCs)

 We repeat our support for the decision to introduce case fees for CMCs and other professional representatives (PRs). This is the right decision considering the acknowledgement that the behaviour of some CMCs and PRs has 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. This is substantiated by the FCA and FOS, who wrote that “the vast majority of complaints [...] received from PRs were not upheld in the consumer’s favour, and that this position was worse when compared to consumers that complained directly [to the FOS], without professional representation”.^[4]

Nevertheless, we maintain our position as articulated in our response to the FOS consultation on Charging Claims Management Companies and other professional representatives that the £260 case fee for CMCs and PRs is simply too low. £260 is significantly lower than the £680 case fee that respondent firms will  have to pay whenever a claim is brought against them, regardless of the outcome as things stand, until differentiated case fees come into effect.^[5]

Even if the claim brought by a CMC does not receive an outcome favourable to the CMC’s client, respondent firms will still have to pay a case fee amounting to £500. While we recognise that this is a £180 reduction from the £650 respondent case fee, £500 remains significantly higher than the £260 case fee for CMCs. As a result, we 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. We also recognise that in guidance to consumers, FOS states that “You don't need to pay anyone to represent you, for example a lawyer or claims management company (CMC)^[6]” and we question their value-for-money in many complaint scenarios.

Moreover, we reiterate that the £680 case fee (or £500 for unsuccessful claims brought by CMCs) is especially concerning for DPC firms as they prepare to enter the FOS’s jurisdiction once they become regulated on 15 July 2026. As we have previously shared with the FOS, case fees as they currently stand are disproportionate, given that the average value of DPC consumer transactions is less than £65.

The case fee for CMCs and professional representatives should be set at £680 (or £650 as we propose for respondent firms). This high fee level is fair because it is the same amount that the FOS is proposing that firms pay FOS when a claim is brought against them. Even as case fees imposed on firms and CMCs should be the same, we would also caution the FOS against making £680 the default case fee indefinitely. We would encourage the FOS to reconsider the arguments we made on this matter in our response to the consultation about charging CMCs.^[7]

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. The FOS must reconsider the case of differentiation by repeating its analysis and modelling exercise, taking into account business models such as DPC, whose entrance into the regulatory perimeter is imminent. While the FOS’s proposals will allocate fees more proportionately across cases, they are nevertheless designed to maintain the same overall income as the flat £680 case fee.

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 £680 (or £650 as we propose), or a reduced sum based on the binary choice of whether the case outcome is favourable to the CMC’s client or respondent firm.  Ideally, we would like the FOS to introduce:

• Case fees that reduce the need for firms to settle complaints early, simply to avoid having to pay the £680 (or £650 as we propose) case fee to the FOS; and
• Case fees that are high enough for CMCs and PRs to focus on their activities on pursuing higher value and higher reward cases, rather than inundating firms and the FOS with thousands of low value claims with questionable merit.

It is crucial that the FOS bears this in mind as it evolves over time, as envisaged under the FCA and FOS’s proposals to modernise the redress system, to ensure that there are no unintended consequences for small and innovative businesses and consumers.

[ENDS]

^[1] Innovate Finance, HM Treasury consultation: Review of the Financial Ombudsman Service Innovate Finance response. See here: https://www.innovatefinance.com/consultation/hm-treasury-consultation-review-of-the-financial-ombudsman-service-innovate-finance-response/

^[2]  Innovate Finance, FCA and FOS consultation (CP25/22) Modernising the Redress System Innovate Finance response https://www.innovatefinance.com/consultation/fca-and-fos-consultation-cp25-22-modernising-the-redress-system-innovate-finance-response/

^[3]   Innovate Finance,FOS Consultation: 2025/26 Plans and Budget Innovate Finance response http://innovatefinance.com/consultation/fos-consultation-2025-26-plans-and-budget-innovate-finance-response/

^[4] Financial Conduct Authority and Financial Ombudsman Service, Call for Input: Modernising the Redress System. See here: https://www.fca.org.uk/publication/call-for-input/call-for-input-modernising-redress-system.pdf

^[5] Innovate Finance, FOS Consultation: Charging Claims Management Companies and other professional representatives Innovate Finance response. See here: https://www.innovatefinance.com/consultation/fos-consultation-charging-claims-management-companies-and-other-professional-representatives-innovate-finance-response/

^[6] https://www.financial-ombudsman.org.uk/consumers/expect

^[7] Ibid.