Who Funds the Ombudsman?

The funding mechanism for an ombudsman service is not uniform; it primarily depends on the specific ombudsman's jurisdiction, purpose, and the sector it oversees. Generally, ombudsman services are funded either by the industries they regulate, by the government, or through a combination of these and other sources to ensure their impartiality and operational independence.

The Financial Ombudsman Service (FOS) Funding

In the United Kingdom, the Financial Ombudsman Service (FOS), which plays a vital role in resolving disputes between consumers and financial businesses, is notably funded by the financial services sector it oversees. This funding model is structured through a combination of:

• Statutory Levies: These are annual fees paid by all financial services firms that are authorized by the Financial Conduct Authority (FCA), regardless of whether they have complaints referred to the FOS. The size of the levy often depends on the firm's size and the volume of business it conducts.
• Case Fees: These are charged to financial firms when a complaint against them is referred to the FOS for adjudication. Often, a certain number of complaints are allowed for free each year before charges apply, incentivizing firms to resolve issues directly with their customers. This ensures that firms bearing the costs are those generating the complaints.

This industry-funded model is designed to ensure that the cost of handling complaints is borne by the sector causing them, rather than the taxpayer, while aiming to preserve the FOS's operational independence.

Diverse Funding Models Across Ombudsman Services

Beyond the financial sector, ombudsman services around the world adopt various funding models. Here's a look at common approaches:

• Government-Funded Ombudsmen:
  • Many public sector ombudsmen, such as those overseeing government departments, local authorities, or health services, are funded directly by the state or through public funds. This model aims to ensure their independence from the entities they investigate, as their budgets come from a separate legislative appropriation.
  • Example: The Parliamentary and Health Service Ombudsman in the UK is largely funded by the Exchequer, providing an independent complaints service for the public regarding government departments and the National Health Service (NHS).
• Industry-Funded Ombudsmen (Other Sectors):
  • Similar to the FOS, ombudsman services in other regulated industries, like energy, communications, or legal services, are often funded by the companies operating within those sectors. This model promotes a self-regulatory approach where the industry itself contributes to resolving consumer disputes.
  • Examples:
    • The Energy Ombudsman (UK) is funded by the energy companies.
    • The Communications Ombudsman (UK) is funded by communication providers.
• Hybrid Models: Some ombudsman schemes may employ a mix of funding sources, perhaps combining government grants with industry contributions or user fees (though direct fees from complainants are rare in consumer ombudsman services to avoid creating barriers to access).

Why Funding Models Matter

The funding model of an ombudsman is critical to its perceived and actual independence and impartiality.

• Preventing Bias: An ombudsman must be, and be seen to be, neutral in disputes. Funding mechanisms are designed to minimize any potential influence from the parties involved in complaints. For instance, while the financial sector funds the FOS, its operational decisions and complaint outcomes are independent of the industry.
• Ensuring Accessibility: Funding needs to be stable and sufficient to allow the ombudsman service to operate effectively, handle the volume of complaints, and remain free at the point of access for consumers.
• Promoting Accountability: The funding structure can also influence the accountability of the ombudsman itself, for instance, through parliamentary oversight for government-funded bodies or through industry governance for sector-specific schemes.

Summary of Ombudsman Funding Examples

Understanding how ombudsman services are funded provides insight into their operational structures and their commitment to providing accessible, fair, and independent dispute resolution.