Auto Insurance Quotes ~ ABI hits out at FOS £25m levy to build up reserves : The Association of British Insurers has criticised the Financial Ombudsman Service for its plans to levy the industry to fund a £25m boost to the FOS’s reserves.
In January, the FOS revealed it was seeking a levy increase of up to £30m.
Last week, the FSA approved a £25m increase to the levy for 2011/12 to fund reserves so the ombudsman can deal with an expected surge in payment protection insurance complaints.
This follows a judicial review into the FSA’s PPI complaint measures, launched by the British Bankers’ Association in October. A High Court hearing was held in January but a judgement has not yet been issued.
The ombudsman says the loss of income from case fees as a result of the judicial review could exhaust its reserves within six weeks.
An FSA spokeswoman says no decision has been made about how the levy will be allocated between fee blocks. It is due to be announced in May.
In a fee consultation paper, published in February, the FSA indicated that the majority of the levy would fall on banks, building societies and general insurance intermediaries.
The FSA has approved an operational budget for the FOS of £102.9m for 2011/12. The £25m rise will be levied on top of the operational budget.
The budget allows the FOS to freeze the £500 case fee, paid after three cases, for the second year running.
The FOS says: “We believe that inc- reasing our reserves is prudent and necessary in order to manage our financial risks in 2011/12.”
ABI assistant director James King says: “We are disappointed that the FOS has decided to increase the levy on firms rather than use its overdraft to cover any additional costs arising from the PPI judicial review.
“The FSA has already said the maj- ority of PPI complaints should be dealt with by firms, meaning the FOS is unlikely to see a significant reduction in case income.”
Highclere Financial Services partner Alan Lakey says: “One alternative would be for the FSA to force PPI providers to pay case fees.”
