Financial Ombudsman Service

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The Financial Ombudsman Service was set up by law in 2001 under the Financial Services and Markets Act 2000 - to help settle disputes between consumers and UK-based businesses providing financial services, such as banks, building societies, insurance companies, investment firms, financial advisers and finance companies ^[1][2][3].

Contents 1 what the Financial Ombudsman Service covers 2 how the Financial Ombudsman Service decides complaints 3 how the ombudsman is funded 4 criticism of the ombudsman 5 the ombudsman's impartiality 6 budget and staffing levels 7 the status of ombudsman decisions 8 accountability 9 triennenial reviews 10 see also 11 references 12 external links

[edit] what the Financial Ombudsman Service covers

The Financial Ombudsman Service can deal with complaints from consumers about most financial matters including, for example: banking, insurance, mortgages, pensions, savings and investments, credit cards and store cards, loans and credit, hire purchase and pawnbroking, financial advice, stocks, shares, unit trusts and bonds.

But the consumer must first give the business they are unhappy with the opportunity to look into the complaint itself - before the ombudsman service can make a decision on the dispute ^[4].

[edit] how the Financial Ombudsman Service decides complaints

The ombudsman makes decisions on the basis of what it believes is fair and reasonable in the particular circumstances of each case. In making decisions on individual complaints, the law ^[5][6] requires the ombudsman to take takes into account: relevant law and regulations; regulators' rules, guidance and standards; codes of practice; and (where appropriate) what he considers to have been good industry practice at the relevant time. ^[7]

[edit] how the ombudsman is funded

The Financial Ombudsman Service is funded by the UK's financial services sector through a combination of statutory levies and case fees ^[8][9] - paid by financial businesses that are regulated by the Financial Services Authority (FSA) or the Office of Fair Trading (OFT) and are automatically covered by law by the ombudsman service. The service is free to consumers.

[edit] criticism of the ombudsman

• There are severe delays in dealing with consumer complaints ^{[10][11][12][13][14][15]}
• As a consequence of the high volume of complaints and the low number of adjudicators, there is an obvious incentive for adjudicators to dismiss claims unfairly. The evidence that this is actually happening can be seen from the doubling of the percentage of cases found in the consumers favour when the cases are escalated to the ombudsman after they have previously been dismissed by an adjudicator^[16]. The Chief Ombudsman has also confirmed that adjudicators are paid bonuses dependent on the number of cases they close. ^[17].
• Questions as to their impartiality^[18] due to the manner in which they're funded and the financial services and/or career civil servant backgrounds of their board. ^[19][20]. It is noticeable that more than 70% of cases brought by consumers to the FOS are either found against the consumer or are deemed to be outside the jurisdiction of the FOS. ^[21]. Of the minority of cases which have been found in favour of the consumer, there have been complaints that the awards are inadequate. ^[22]
• There is no effective way to challenge an ombudsman's decision.^[23] Consumers approach the FOS rather than the Courts because they are attracted by the way in which the FOS advertises itself as a free, timely, impartial alternative to the Courts. What is not realised is that the ombudsman's decisons merely have to take note of, as opposed to adhere to the law. If the consumer disagrees with what is in effect the ombudsman's personal view on the case the only way in which they could have this overturned is to apply for a judicial review. Since that method would be much more expensive in most cases than lodging particulars of claim for the original allegation, there hasn't been a judicial review brought by a consumer against the FOS. However, there have been judicial reviews by financial services companies who have no choice but to accept the ombudsman's decision as that is a requirement of them being allowed to trade. The difficulty in winning a judicial review is that the Financial Services & Markets Act^[24] which led to the establishment of the FOS allowed a decision to be made "by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case". In an IFA-requested judicial review of an ombudsman's decision, the judge further clarified that the ombudsman's "free to make an award different from that which a court applying the law would make"^[25]. This means that a litigant has to surmount the very high hurdle of proving that the entirety of the ombudsman's decision was so unfair that no right minded person would have made a similar decision.

Disillusionment with the FOS has led to cases being taken to Court instead. ^[26]

[edit] the ombudsman's impartiality

The Financial Ombudsman Service publishes the proportion of complaints it upholds in favour of consumers ^[27] ranging (in 2007/08) from 16% to 84%, depending on the financial product concerned [citation required]. The ombudsman was set up by parliament to be an impartial and independent body. But like any referee, its decisions can come as a disappointment to whichever side doesn't hear what it wants to hear ^{[28][29][30][31][32][33]}.

Independent commentators acknowledge that the ombudsman service is a valuable free service for consumers - although those who feel they have "lost" a complaint might understandably feel let down and want to question the ombudsman's impartiality ^[34][35]. Some consumers have questioned the amount of redress awarded by the ombudsman ^[36] while many firms expect the ombudsman to apply the compensation cap rigidly ^[37].

[edit] budget and staffing levels

The entire FOS staff in 2007 (including substantial number of anciliary staff) was 960. They managed to handle 627,814 initial enquiries and close 111,673 cases which had been sent to for adjudication. Despite this incredible workload the BBC reported in September 2007 that the FOS planned to reduce staff numbers to 600 ^[38].

Staffing levels at the Financial Ombudsman Service fluctuate - as does the budget year-on-year - to match the volume of disputes it is dealing with. The number of staff required - and forecasts for complaints volumes and workload - are consulted on publicly each year in the ombudsman's corporate plan and budget ^[39][40].

[edit] the status of ombudsman decisions

More than 90% of the disputes that the Financial Ombudsman Service resolves are settled at earlier informal stages, through processes such as mediation and conciliation. An ombudsman's decision is the final stage of the Financial Ombudsman Service's process ^[41]. If the consumer with the complaint accepts a final decision, it is binding on both parties and enforceable in court ^[42][43].

But if the consumer chooses not to accept an ombudsman's decision, their legal rights remain unaffected and they can take the matter to court instead - subject to any requirements set by the courts. However, independent commentators generally recommend that consumers should use the ombudsman service rather than the courts ^{[44][45][46][47]} as the outcome of court cases can be unexpected and disappointing ^[48].

However, there have been judicial reviews against the ombudsman, brought by financial services companies who have to accept the ombudsman's decisions which are binding in law ^[49]. The difficulty in winning a judicial review is that the Financial Services and Markets Act 2000 ^[50] which led to the establishment of the Financial Ombudsman Service requires the ombudsman to make decisions "by reference to what is, in the opinion of the ombudsman, fair and reasonable in all the circumstances of the case".

In a judicial review of an ombudsman's decision brought by an independent financial adviser (IFA), the judge further clarified that the ombudsman is "free to make an award different from that which a court applying the law would make" ^[51]. This means that a litigant has to surmount the very high hurdle of proving that the entirety of the ombudsman's decision was so unfair that no right minded person would have made a similar decision.

[edit] accountability

The board of the Financial Ombudsman Service ^[52] is appointed by the Financial Services Authority - and the appointment of the chairman is approved by HM Treasury. The board's role includes guarding the independence of the ombudsman - from undue influence by the financial services industry and trade bodies, regulators, consumer groups and government. Board members are non-executive - they have no involvement in individual complaints.

The FOS is held accountable to the general public via HM Treasury who are in turn have to account to The Parliamentary Treasury Select Commitee who can be contacted by the consumer's MP.

The Financial Ombudsman Service is not covered by the Freedom of Information Act as technically it is not a "public body" - it is a dispute-resolution service resolving complaints in private ^[53].

Consumer satisfaction surveys - and surveys of businesses covered by the ombudsman - are conducted by the Financial Ombudsman Service on an ongoing basis. The results are published in the ombudsman's annual review ^[54][55].

Customers of the Financial Ombudsman Service - both consumers and businesses - can seek redress from the Independent Assessor ^[56] if they are unhappy with the level of service they have received ^[57].

The Independent Assessor is appointed by the board of the Financial Ombudsman Service. The current incumbent - Michael Barnes CBE - was formerly the chairman of the British and Irish Ombudsman Association, the Legal Services Ombudsman and a non-executive board member of the Financial Ombdudsman Service.

He was made interim Independent Assessor on the retirement of Sir Edward Osmotherly in April 2002 and his position was then made permanent. Although the Independent Assessor is not subject to the rules of the Office of Commissioner for Public Appointments, the OCPA's rules require that "a department cannot select a person as an independent assessor if that individual already holds a post on one of the public bodies it sponsors or has left such a post within the past 12 months" ^[58].

The Independent Assessor reports formally to the board of the Financial Ombudsman Service - which publishes his report in full each year as part of the Financial Ombudsman Service's annual review ^{[59][60][61][62][63][64]}.

Mr Barnes' track record so far is to uphold in part or fully between 10-15% of complaints about the ombudsman's service quality.

[edit] triennenial reviews

In 2007/08 the Financial Ombudsman Service was the subject of a triennial review by Lord Hunt, the terms of reference of which were set by the non-exectuive board of the Financial Ombudsman Service ^[65].

Lord Hunt - a leading financial-services lawyer, president of the Chartered Insurance Institute and former government minister - was commissioned in late 2007 to conduct an "independent" ^[66] review, focusing on the openness and accessibility of the Financial Ombudsman Service^[67].

The review allowed for a three-month submission period between 16/10/2007 and 16/1/2008. Corporate submissions were published on Lord Hunt's review-website ^[68].

Complaints have been made that consumer submissions were either not published or were edited before publication ^[69][70]. However, Lord Hunt had already explained that he would generally not publish individual consumers' submissions - because of the details they frequently contained relating to individual personal and financial circumstances.

Lord Hunt's report was published on 9 April 2008 ^[71]. Lord Hunt concludes that: the ombudsman's approach to settling disputes on the basis of "what is fair and reasonable" is essential – to underpin the ombudsman's credibility as an informal non-legalistic alternative to the courts; charging consumers to access the ombudsman – as some have proposed – would comprehensively damage accessibility; there is no convincing case for an external appeals mechanism – on top of the ombudsman service's current internal appeals procedure; there should be no change to the ombudsman's current approach to formal hearings (holding them only where absolutely necessary – as most disputes can be decided on the basis of paper evidence); there is no requirement for a small firms' division – as long as the ombudsman's Smaller Businesses Taskforce continues to focus on the particular needs of small firms; there should be closer monitoring and regulation of the activities of claims management companies; there should be greater openness – in relation to the ombudsman's approach, the relationship between the ombudsman and the regulatory system, and the performance of individual financial services businesses in handling customer complaints ^[72][73].

Lord Hunt's review also includes 73 specific recommendations for the ombudsman service, including: significantly increasing investment in pro-active communications – including TV advertising, consumer campaigns and strategic partnerships with government and others; commissioning a new consumer-friendly brand-name instead of ombudsman; offering a freephone service (instead of the current subsidised 0845 number) and extended opening hours; appointing "case advisers" – working alongside adjudicators and ombudsmen – to guide the most vulnerable consumers through the complaints-handling process; launching an awards scheme to identify and reward businesses who handle complaints well – matched by a "wooden spoon" for the worst performers; publishing comprehensive information on all aspects of ombudsman policy and methodology (but not decisions on all cases) – as well as benchmarked data on how individual financial services businesses handle complaints; and placing all the ombudsman service's formal communication with the regulators on the public record.

Lord Hunt says of the appointment of the Independent Assessor that the Financial Ombudsman Service should "continue to ensure that the appointment of the Independent Assessor follows an openly advertised "Nolan"-based process ... The transparent approach adopted for his appointment further reinforces confidence in his role and should be maintained for future appointments..." This could convey a misleading impression that the current Independent Assessor's appointment was both subject to the Nolan recommendations and covered by the Office of the Commissioner for Public Appointments Code of Conduct.

[edit] see also

• bank charges

[edit] references

[edit] external links

• Financial Ombudsman Service website