Financial Ombudsman Service

The United Kingdom's Financial Ombudsman Service is an ombudsman established in 2001 as a result of 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]

Overview

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.

From November 2009 money-transfer operators also came under the ombudsman's remit.

Before the ombudsman can step in, 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. The business has a maximum of 8 weeks to resolve the complaint. If they do not resolve it within 8 weeks or the consumer is not happy with the response then they can refer the complaint to the ombudsman service.^[4]

Processes

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 into account: relevant law and regulations; regulator's rules, guidance and standards; codes of practice; and (where appropriate) what he/she considers to have been good industry practice at the relevant time.^[7]

Funding

The Financial Ombudsman Service is funded by the UK's financial services sector through a combination of statutory levies and case fees.^[8][9] These are paid by financial businesses that are regulated by the Financial Conduct Authority (FCA) or licensed by the Office of Fair Trading (OFT) and are automatically covered by law by the ombudsman service. The payment of these statutory levies and fees are not optional and are payable whether or not a complaint is upheld by the Financial Ombudsman Service. The service is free to consumers. Between 2006 and 2009 the ombudsman service made use of case-handling services provided by Deloitte LLP, to handle the growing volumes of work generated by payment protection insurance complaints.

Impartiality

The Financial Ombudsman Service publishes the proportion of complaints it upholds in favour of consumers. Across all complaints in 2013/2013 the ombudsman found 49% in favour of consumers.^[10]

The ombudsman was set up by parliament to be an impartial and independent body, though its decisions can be criticised by the side that loses.^{[11][12][13][14][15][16]}

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.^[17][18] Some consumers have questioned the amount of redress awarded by the ombudsman ^[19] while many businesses expect the ombudsman to apply the compensation cap rigidly and lobbied against the increase (in January 2012) from £100,000 to £150,000 in the maximum compensation the ombudsman can tell a business to pay.^[20]

Various websites have been set up to complain about the Financial Ombudsman's partiality - usually by people who disagree with particular ombudsman decisions.^[21][22]

Complaints-handling performance of individual financial companies

Since September 2009 the Financial Ombudsman Service has been publishing complaints data on its website every six months about named individual businesses. The data provided relates to businesses which have 30 or more new cases, or 30 or more resolved cases, in each six-month period. The data shows the number of new complaints, and the proportion of complaints upheld in favour of consumers.

The complaints data shows that:^[23]

• just under 200 businesses (out of more than 100,000 covered by the ombudsman service) together generate around 90% of the complaints workload,
• the number of complaints relating to each individual business ranges from 30 to over 45,000,
• the proportion of cases upheld in favour of the consumer varies substantially from business to business – between 3% and 100%.

Budget and staffing levels

The entire ombudsman staff in 2007 (including substantial number of ancillary 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 ombudsman planned to reduce staff numbers to 600, reflecting the decline in mortgage endowment complaints.^[24] By December 2009 ombudsman staff had increased to over 1,000 - reflecting a substantially increased workload of 200,000 cases. Currently there are 3,500 people working at the ombudsman – reflecting a substantially increased workload of over half a million cases last year (2012/2013).

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.^[25][26]

Status of Ombudsman decisions

Around 90% of the disputes that the Financial Ombudsman Service resolves are settled at earlier informal stages, without the intervention of an ombudsman. An ombudsman's decision is the final stage of the Financial Ombudsman Service's process.^[27] If the consumer with the complaint accepts a final decision, it is binding on both parties and enforceable in court.^[28][29][30]

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 ^{[31][32][33][34]} as the outcome of court cases can be unexpected, disappointing and costly.^[35]

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. For example, in January 2011 the British Bankers Association - on behalf of a number of high-street banks - brought a judicial review against the ombudsman and the FSA on the approach to PPI complaints handling. The High Court rejected the banks' challenge and endorsed the approach taken by the ombudsman and the FSA. ^[36] The difficulty in winning a judicial review is that the Financial Services and Markets Act 2000 ^[37] 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".^[38] 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. This is referred to as the Wednesbury unreasonableness principle which applies to any application for judicial review under made due to the irrationality of the decision.

Accountability

The board of the Financial Ombudsman Service ^[39] 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 ombudsman can be asked to appear before the Parliamentary Treasury Select Committee who can be contacted by the consumer's MP.

In November 2011 the Financial Ombudsman Service became covered by the Freedom of Information Act. The ombudsman's website has a page of information on this subject

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 annually in the ombudsman's annual review.^[40][41]

Customers of the Financial Ombudsman Service - both consumers and businesses - can seek redress from the Independent Assessor ^[42] if they are unhappy with the level of service they have received.^[43]

The Independent Assessor is appointed by the board of the Financial Ombudsman Service. The current holder of the post is Amerdeep Somal, who has held several similar posts.^[44]

The Independent Assessor reports formally to the board of the Financial Ombudsman Service - which publishes a report in full each year as part of the Financial Ombudsman Service's annual review.^{[45][46][47][48][49][50]}

Triennial reviews

The non-executive board of the Financial Ombudsman Service commissions three-yearly external reviews of the service.

The first review - in 2004 - involved a six months' assessment of the operations of the ombudsman carried out by Bristol University's Personal Finance Research Centre. The review - "Fair and reasonable: an assessment of the Financial Ombudsman Service" ^[51] - included a detailed overview of the ombudsman service's case-handling procedures and systems. It examined the organisation's performance in terms of quality, consistency, process and value. The review concluded with the "overall view that the Financial Ombudsman Service is a thoughtful, well-managed organisation that is doing a good job under difficult circumstances."

In 2007/08 the Financial Ombudsman Service was the subject of a second triennial review - by Lord Hunt, the terms of reference of which were set by the non-executive board of the Financial Ombudsman Service.^[52]

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" ^[53] review, focusing on the openness and accessibility of the Financial Ombudsman Service.^[54]

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.^[55]

Complaints have been made that consumer submissions were either not published or were edited before publication.^[56][57] 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.^[58] 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.^[59][60]

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 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.

The Financial Ombudsman Service has published updates on its accessibility and openness projects - following Lord Hunt's recommendations.^[61] The ombudsman service has also set up a discussion group - made up of financial services practitioners and representatives from consumer organisations - to help with ongoing plans to develop and implement accessibility and transparency initiatives.^[62]

In January 2012 the National Audit Office (NAO) published its report into the efficiency of the ombudsman service, having been invited to do so by the board of the ombudsman. This was the third three-yearly external review.

The NAO concluded that: - Having to cope with volatile demand is a key test for the ombudsman service. - With more than half of the ombudsman service’s workload over the last decade relating to just three issues – mortgage endowments, bank and credit-card charges, and PPI – the large surges of so-called "mass claims", and the way in which financial businesses deal with them, give rise to major operational challenges. - The cost of settling disputes at the ombudsman service had risen by 214% in real terms since 2001 – but the complaints workload it has handled over this period had increased by 376%. - The programme of changes introduced in 2010 to modernise operational processes and IT (including the e-enablement project) had already begun to realise benefits – and while some aspects of project management should be strengthened, the programme was being managed well with good progress made to date.

As of October 2013, the ombudsman's board has commissioned the service's fourth external review. The Future Foundation, specialists in trend analysis, will conduct a review of the ombudsman's role, which has been allocated a budget of £200,000. The review will encompass how changes in technology, consumer expectations and brand management will affect the ombudsman’s work.^[63]

Criticism

• Timeliness - In the twelve years since the ombudsman service was created, some consumers, businesses and commentators have suggested that the ombudsman takes too long to look at some complaints. In previous years, the ombudsman has seen complaints about some topical financial matters take longer to resolve that others (notably, mortgage endowments and payment protection insurance (PPI) due to the sheer volume of complaints received by the service.^[64] The ombudsman’s most recent recently published annual review (2012/2013) shows that 58% of all disputes were sorted out within six months – and 43% of non-PPI cases within three months.^[65]
• Questions as to their impartiality^[66] due to the manner in which they're funded by the financial services, and that many employees have worked for financial services firms.^[67][68] Though the ombudsman service currently upholds over 49% of complaints in favour of the consumer, there have been complaints that the awards are inadequate.^[69]
• As an ombudsman's decision is the final stage in the service's process, consumers who remain unhappy would need to pursue their complaint through the court.^[70]
• 15-year long-stop: There is no 15-year "long-stop" rule in the complaints-handling rules made under the Financial Services and Markets Act and the Consumer Credit Act. In its policy statement published in January 2003 - and following subsequent reviews - the Financial Services Authority (FSA) set out why there is no 15-year limitation period in the complaints-handling rules, stating: "We do not consider it is in the interests of consumers to rule out the possibility of complaints being dealt with outside the 15-year period that would apply to court cases. Nor do we consider this necessary to prevent hardship to firms."

International Network of Financial Services Ombudsman Schemes

The UK Financial Ombudsman Service is a member of the International Network of Financial Services Ombudsman Schemes, a global association whose members operate as out-of-court dispute resolution mechanisms in the financial sector.

Other members include:

• Financial Ombudsman Service (Australia)
• Ombudsman for Banking Services and Investments (Canada)
• Financial Services Ombudsman's Bureau of Ireland
• Ombudsman for Banking Services (South Africa)

A list of all members can be found at the International Network's website.

See also

• Bank charges

References

External links

• Official website