The relevant provisions of DISP 5 are applied to VJ participants by the standard terms (see DISP 4).

References in this chapter to "firms" are to be construed, where relevant, as including:

1. (1)

   in accordance with the Ombudsman Transitional Order, unauthorised persons subject to the Compulsory Jurisdiction in relation to relevant complaints (see Transitional Provisions 6 and 7); and

2. (2)

   as a result of section 226 of the Act, unauthorised persons who were formerly firms in respect of complaints about acts or omissions which occurred at the time when they were firms, provided that the Compulsory Jurisdiction rules were in force in relation to the activity in question.

The purpose of this chapter is to set out the requirements on firms to pay annual fees (through a general levy and supplementary levy invoiced and collected by the FSA on behalf of FOS Ltd) and case fees (invoiced and collected directly by FOS Ltd) in order to fund the operation of the Financial Ombudsman Service. This chapter also contains a requirement on firms to pay a supplementary levy towards the costs of establishing the Financial Ombudsman Service.1 It also provides for unauthorised persons to pay case fees to FOS Ltd in respect of any relevant complaints which it handles.

Paragraph 9 of Schedule 17 to the Act (The Ombudsman Scheme) requires FOS Ltd to adopt an annual budget which has been approved by the FSA. The annual budget must distinguish between the costs of operating the Compulsory Jurisdiction and the Voluntary Jurisdiction.

Section 234 of the Act (Industry Funding) enables the FSA to require the payment to it or to FOS Ltd, by firms or any class of firm, of specified amounts (or amounts calculated in a specified way) to cover the costs of:

1. (1)

   establishing the Financial Ombudsman Service; and

2. (2)

   its operation in relation to the Compulsory Jurisdiction.

Paragraph 15 of Schedule 17 to the Act enables FOS Ltd to require firms subject to the Compulsory Jurisdiction and any other respondents to a complaint to pay specified fees to it in respect of complaints closed by the Financial Ombudsman Service.

The Ombudsman Transitional Order provides for unauthorised persons to be charged fees in respect of any relevant complaints against them which the Financial Ombudsman Service handles.

Paragraph 18 of Schedule 17 to the Act enables FOS Ltd to require VJ participants to pay to it such amounts at such times as it specifies in the standard terms.

The relevant provisions of these rules will be applied to VJ participants through the standard terms made by FOS Ltd under paragraph 18 of Schedule 17 to the Act (see DISP 4).

This chapter sets out the framework for the funding arrangements of the Financial Ombudsman Service, including the method by which fees will be calculated. Details of the actual fees payable will vary from year to year, depending on the annual budget of the Financial Ombudsman Service. These details will be set out in an annex to this chapter (DISP 5 Annex 1R R). A new annex will be prepared and consulted on for each financial year.

Each financial year, the FSA and FOS Ltd will consult on the amount of the annual budget of the Financial Ombudsman Service which is to be raised by the general levy.

For the purposes of the general levy, a firm will fall into one or more of the industry blocks set out in DISP 5 Annex 1R R depending on the business activities which it conducts.

The FSA will determine, following consultation, the amount to be raised from each industry block. This will be based on the budgeted costs and numbers of Financial Ombudsman Service staff required to deal with the volume of complaints which the Financial Ombudsman Service expects to receive about the firms in each industry block. Modified arrangements have been made for certain types of small firms (see DISP 5.6.3 R to DISP 5.6.5 G).

Part 2 of DISP 5 Annex 1R Rsets out the fee tariffs for each industry block.

The FSA will specify a minimum levy for firms in each industry block.

Under the standard terms, VJ participants will be required to pay to FOS Ltd an amount calculated on a similar basis towards the costs of operating the Voluntary Jurisdiction of the Financial Ombudsman Service. FOS Ltd will be responsible for invoicing and collecting this amount.1

SUP 16.3 (General provisions on reporting) contains further rules on the method of submission of reports under DISP 5.5.1 R.

1A firm should not provide a statement of relevant business if it deals only with eligible complainants who are not private individuals. Relevant business is defined in the Glossary as business done with private individuals only. So DISP 5.5.1 R does not apply in relation to business done with other types of eligible complainant described in DISP 2.4.3 R (1)(b), (c) and (d); the funding of FOS Ltd in relation to that business is by special case fee only (see DISP 5.6.6 R).

The standard case fee, which will be subject to consultation each year, will be calculated by dividing the annual budget for the Compulsory Jurisdiction, less the amount to be raised by the general levy, by the estimated number of chargeable cases which the Financial Ombudsman Service expects to close in the relevant financial year.

The firms in industry blocks 13 and 15 are cash plan health providers and small friendly societies. These arrangements have been made in respect of these firms to take account of the fact that the amount at issue is likely to be small relative to the case fee. Instead, the full unit cost of handling complaints against these firms will be recovered through the general levy in accordance with the relevant tariff-base and no case fee will be payable. Similar arrangements have been made under DISP 5.6.3 R in respect of small credit unions.

Under the Ombudsman Transitional Order, FOS Ltd can handle complaints about members of a former scheme which that scheme could have handled before commencement, even if the unauthorised person concerned does not become authorised by the FSA after that date. Where FOS Ltd handles such complaints, the unauthorised person concerned will be required to pay a special case fee.

The relevant provisions of DISP 5.6 will be applied to VJ participants through the standard terms.

A firm which was, before commencement, a member of PIA and a former scheme other than the PIAOB scheme will not, on account of the exclusion in DISP 5.6.11 R, be required to pay the special case fee specified by DISP 5.6.10 R in respect of all chargeable cases relating to it but only those which arise in respect of investment business matters which would have been eligible under the PIAOB scheme.

For the purposes of calculating the supplementary levy, the FSA will apportion the establishment costs between the industry blocks in the same proportions as the operating costs for the purposes of the general levy. The supplementary levy will therefore be raised from firms on the same basis and at the same time as the general levy (see part 2 of DISP 5 Annex 1R R).

The establishment costs will be recovered via the supplementary levy over the first three full financial years of the Financial Ombudsman Service's operation.

The amount of establishment costs to be raised each year through the supplementary levy will be specified in part 2 of DISP 5 Annex 1R R.

The supplementary levy will be identified separately from the general levy for the purposes of invoicing firms and VJ participants.

Under the standard terms, VJ participants will also be required to pay an amount calculated on a similar basis towards the costs of establishing the Voluntary Jurisdiction of the Financial Ombudsman Service.

The Financial Ombudsman Service will invoice firms for case fees on a monthly basis and firms will be required to pay these fees within 30 calendar days of receiving the invoice.

The FSA will issue invoices for the general levy and any supplementary levy. FOS Ltd will issue invoices for standard case fees and special case fees. Each invoice will be payable within 30 calendar days. Invoices will be sent to the firm's Compliance Officer at the principal place of business in the United Kingdom last notified to the FSA. A firm which is liable to pay under DISP 5.8.1 R may do so by direct debit agreement.1

If a firm (or unauthorised person) subject to the Compulsory Jurisdiction fails to make payment under this chapter of standard or special case fees, after expiry of the 30 day period, FOS Ltd may:1

1. (1)

   Take steps to recover any money owed (including interest);

2. (2)

   Refer the matter to the FSA so that the FSA may take whatever disciplinary action it considers necessary.

1If a firm (or unauthorised person) fails to make payment under this chapter of the general levy and any supplementary levy to which it is subject, after the expiry of the 30 day period, the FSA may take whatever action it considers appropriate including steps to recover any money owed (with interest) and commencing disciplinary proceedings.

Firms which cease to be authorised and therefore subject to the Compulsory Jurisdiction part way through the year will not receive a refund of their general levy (or supplementary levy) except in exceptional circumstances. Firms will continue to be liable for any case fees relating to chargeable cases closed by the Financial Ombudsman Service after they cease to be authorised. Firms will be charged the standard case fee where the complaint was closed by the Financial Ombudsman Service before the end of the year in which their authorisation ceased. The special case fee will apply to any complaint closed after the end of that year since the firm will no longer be contributing to the general levy.1