Treasury reforms to banks ombudsman threaten independence, MPs warn
The Treasury’s reforms to the banks ombudsman threaten to upend the body’s independence, a group of influential MPs have warned.
The government revealed its overhaul proposals for the financial ombudsman service (FOS) on Tuesday in a bid to curb concerns it had behaved as a “quasi-regulator”.
But a fresh letter to City minister Lucy Rigby penned by Dame Meg Hillier, in her capacity as chair of the Treasury Select Committee, warns a new proposal of the reforms threatens removing the independence of the institution.
“It is the committee’s view that the FOS must be and must be seen to be an independent mechanism to resolve consumers’ complaints against financial firms,” Hillier wrote.
Criticism centres on the government’s decision to make the chair of the FOS a direct government appointment.
Hillier pressed why the change was not included as part of the host of options consulted on last year and pressed for answers on what prompted the move.
“The government’s desire to appoint the chair of the FOS provides an opportunity to ensure that independence is fully protected by Parliament, as the public would expect,” she said.
During a Treasury committee hearing with the senior team at the FOS, interim chair Liam Coleman said he “completely agrees” with Hillier’s sentiment around independence.
“It’s important independence is held at a high level across all consumer groups,” he said.
Treasury steps in after FOS leadership crisis
The Committee called for the Treasury to introduce a “statutory lock” – a precedent seen in the budget and audit watchdogs – and demanded the “reasoning” behind any “refusal” to adopt said policy.
The lock would hand the Treasury Select Committee the power to approve or veto the appointment and dismissal of the FOS Chair.
The reforms come after the FOS was rocked by a leadership crisis in the last year following the abrupt departure of chief executive Abby Thomas in February.
A Treasury Committee report, published in July, revealed Thomas had been dismissed after a “mutual collapse in confidence” stemming from “fundamental disagreements” with the board over strategy.
Just days later, FOS chair Baroness Zahida Manzoor announced she would step down at the end of her term on 1 August.
The current senior leaders across the FOS all hold interim positions, which Hillier pressed whether the new roules would “apply to the next permanent appointees in those posts”.
As part of the government’s new reforms, legislation is set to be introduced for a 10-year time limit for bringing complaints to the FOS, while giving the FCA the ability to make exceptions to this time limit.
Some of the first crackdowns came into effect last April, where a new charging regime for professional representatives, claims management companies, or law firms, bringing complaints forward was introduced.
Under the new system, professional representatives face a £250 charge for each case referred to the FOS beyond the first ten cases per financial year. The changes also dictate that banks will not be charged for the first three complaints they receive in the financial year. From the fourth complaint onward, a case fee of £650 applies.
CityAM revealed last year the banking industry’s ‘Big Six’ – Barclays, HSBC, Lloyds Banking Group, Natwest, Santander and Nationwide – paid the FOS a combined £38.8m in admin fees for the year ending March 31 2025.
Lloyds topped the list at £12.6m, with Barclays second at just short of £9m.