Proposed UK bill to weaken Financial Ombudsman Service, says professor

Press coverage of the King’s Speech, including by the Guardian on May 13, largely overlooked the proposed Enhancing Financial Services Bill, which would diminish the role of the Financial Ombudsman Service (FOS).

Billed as a “modernisation” effort, the proposals reflect pure interest-group lobbying by the finance industry, which already wields significant influence over policy. Since the costs of consumer redress may be concentrated among a few large firms, those firms have strong incentives to shape the policy process.

In contrast, consumers of financial products have diffuse concerns, more limited expertise, and face high organisational costs when trying to participate. Independent empirical and social science evidence should play a key role in assessing reform proposals, the author argues.

Yet the Treasury accepted industry claims about the FOS without question and made little attempt to review independent assessments of its work or explore its role in the financial regulatory system, according to the letter.

“The policy outcome is therefore likely to be at best an exercise in accidental wisdom,” wrote Iain Ramsay, emeritus professor of law at Kent Law School, University of Kent.