Rachel Reeves Seeks Reform of UK Consumer Redress
in the Financial Services Sector

The proposed changes to the FOS framework aim to help financial companies better understand their compliance requirements so regulatory breaches and associated penalties are reduced.

The changes will be implemented to strengthen the FOS Framework in providing consumer redress and make sure that decision-making processes are transparent and fair. The aim is to build more trust and confidence among customers within the financial services sector and encourage them to engage more positively with financial institutions.

As seen in recent news, FOS has been dealing with car finance mis-selling complaints, where millions of UK drivers could receive compensation as the FCA investigates customer charges on car finance loans before January 2021.

From February to April, FOS received 15,925 complaints relating to car finance, almost five times more than during the same period last year.

Nikhil Rathi, head of the FCA, said earlier this year that the UK redress system “stands out in Europe due to its combination of complexity and the scale of claims management activity” and endorsed a review.

The Chancellor is also urging technology and telecom sectors to do more to combat online payment fraud after the financial services industry claims that they are enabling such activity.

According to trade body UK Finance, almost 80% of so-called push payment fraud starts online, and 60% is estimated to begin on social media. Authorised Push Payment Fraud (APP Fraud) is when someone is tricked into sending money to a fraudster posing as a genuine payee.

Due to new rules which came into force in October, banks and payment companies are liable to reimburse claims of push payment fraud worth up to £85,000.

The Chancellor has said she will demand that companies, including Meta, TikTok, BT and EE, update ministers about fraud prevention progress before March with further action if they fail to act.

As a result, consumers can expect faster and more transparent resolutions to their complaints about financial services.

The FCA will launch a new consultation to improve financial literacy and household decision-making to help provide consumers with better resources and tools to understand complex financial products, allowing them to make more informed choices regarding loans, investments, and savings.

With improved financial education and better complaint resolution mechanisms, the goal is for financial institutions to build stronger relationships with their customers.

The Chancellor said:

“While regulation has been successful in improving the quality of financial advice being offered to consumers, many people do not get the help with their finances that they want and need, so the FCA will shortly consult on transformational changes to financial advice and guidance to ensure that people get the right support.”

The reforms also include:

• The Senior Managers and Certification Regime. The Chancellor said, “Some elements of it have become overly costly and administratively burdensome.”
• Freeing the restrictions on major banks and other financial institutions regarding pay.
• Streamlining the duplication in the FCA’s Handbook Review to focus more on growth.
• The Chancellor has issued new growth-focused remit letters to the Financial Conduct Authority, Prudential Regulation Committee, Monetary Policy Committee, Financial Policy Committee and the Payment Systems Regulator.
• New pensions ‘megafunds’ combining local authority pension schemes to create much larger united schemes to drive investment in growth areas.

Sarah Spruce, Legal Director at TLW Solicitors, said:

“These reforms presented by the Chancellor should give customers and fraud victims faster and better resolutions. The FCA and FOS changes will equip financial firms with a clearer understanding of their compliance requirements, preventing mis-selling to customers and educating the public to make better informed financial decisions.

“It will be interesting to see how the proposed changes unfold in reality. In the meantime, whilst any progress is always welcome, TLW Solicitors’ specialist financial mis-selling and fraud teams will continue to be on hand to help pick up the pieces for those who have lost out financially.”