The Financial Ombudsman Service is proposing to increase the number of free cases for smaller and medium financial businesses from three to 25.

It hopes this will reduce the number of firms having to pay a case fee and estimates only one per cent of financial businesses will need to pay one in future.

Smaller financial businesses are defined as those who receive less than 25 complaints per year while medium firms receive between 25 and 2,000 complaints per year.

For larger firms, which make up 70 per cent of complaints received by FOS, a group account arrangement is proposed to accurately represent the number of complaints generated by these firms.

The current arrangements involve case fees payable by firms when they have complaints referred to the ombudsman service, supplemented by a levy payable by all retail financial businesses.

Natalie Ceeney, chief ombudsman and chief executive of FOS, said: “Our current case fee structure has found it difficult to handle cost pressures and financial risks brought about by the increasingly volatile demand for our services. And case fees do not cover the increasingly important work we do to help resolve issues before they become formal complaints.

“This consultation paper sets out a proposal for a new approach-designed to better reflect the diverse needs and issues of fee payers, while securing continuing adequate funding for the work of the ombudsman service.”

The proposal is open to consultation until Monday 16 April 2012 and would be implemented from April 2013 if successful.