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Funding problems hobble Britain's finance ombudsman -report

LONDON, July 12 (Reuters) - Britain's Financial Ombudsman Service requires an improved funding model to retain public confidence in its work, a report said on Thursday, after a documentary alleged a series of failings in the FOS's decisions in financial disputes.

The report was commissioned by the FOS following the programme, which aired on Britain's Channel 4 in March and alleged FOS staff were ill-equipped to deal with complex cases.

Richard Lloyd, author of the report, said he did not find evidence to support many of the programme's allegations, but that the FOS did face problems, including with funding.

"The FOS and the FCA [Financial Conduct Authority] should consider consulting on a levy funding structure for the FOS that is based on the risk firms bring to the market through their unfair treatment of customers," he wrote in the report.

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Currently the FOS is funded via a mix of fees and a levy paid by financial services firms, with the levy amounting to more than 300,000 pounds ($396,000) per year for the biggest firms.

Lloyd also said a recent reorganisation had damaged staff morale and increased risks to the standard of its service, and recommended it strengthen efforts to prevent bias and ensure the quality of its work.

"We’ll be considering carefully what it [the report] means for our service, keen to learn from the past so we can do things even better in the future," said Caroline Wayman, FOS chief executive.

She (Munich: SOQ.MU - news) added the FOS will publish an update on its progress by the end of the year.

The report comes amid broad scrutiny of the options for consumers and businesses caught in disputes with finance firms, which many victims - small businesses in particular - argue fall short.

A group of lawmakers on Wednesday published their own report calling for a tribunal to be set up for firms that have been mistreated by their lenders, while the FCA is currently consulting on extending the FOS to better resolve such cases. Britain's Treasury Committee of lawmakers, which is also looking into the matter, said it will scrutinise the report in detail when it takes evidence from Lloyd and the FOS's chair and chief executive next week.

"Trust in the FOS has been damaged," said Nicky Morgan, chair of the committee, adding it can now consider the reports' recommendations to improve confidence in its work.

"The board must now demonstrate they are up to this job," Morgan (Other OTC: MGHL - news) said in a statement.

($1 = 0.7581 pounds) (Reporting by Emma Rumney; editing by Jason Neely)