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. []

Purview

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 [] requires the ombudsman to take 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. [ [http://www.fool.co.uk/news/your-money/manage-your-finances/2007/06/07/consumers_havent_lost_faith_in_financial_ombudsman.aspx Consumers havent lost faith in the Financial Ombusman Service] ]

Funding

The Financial Ombudsman Service is funded by the UK's financial services sector through a combination of statutory levies and case fees [ [http://www.financial-ombudsman.org.uk/faq/answers/research_a5.html How is the Financial Ombudsman Service funded] ] [ [http://www.fsahandbook.info/FSA/print/handbook/FEES/5 FSA Handbook of Rules and Guidance] ] - 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.

Criticism

* There are severe delays in dealing with consumer complaints [ [http://www.guardian.co.uk/money/2004/oct/23/watchdogs.jobsandmoney Justice grinds to halt as complaints pile up] The Guardian October 23 2004] [ [http://www.endowmentjustice.com/blog/blogitem.aspx?id=1143 The Endowment Justice Blog] ] [http://news.bbc.co.uk/1/hi/programmes/moneybox/3605149.stm Money Box Investigates: Fighting for Fairness] [ [http://www.thisismoney.co.uk/saving-and-banking/article.html?in_article_id=406430&in_page_id=7 The Ombudsman cost me £20000 - This is Money 23/01/2006] ] [ [http://business.timesonline.co.uk/tol/business/money/article742604.ece?token=null&offset=12 A flood, and then the real nightmare began] ] [ [http://news.bbc.co.uk/1/hi/business/7422119.stm Financial complaints rise by 30%] ] [ [http://business.timesonline.co.uk/tol/business/money/consumer_affairs/article3901565.ece Who said the customer is king?] ]
* 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 [ [http://www.financial-ombudsman.org.uk/publications/ar07/dealt.html Financial Ombudsman Annual Review] ] . The Chief Ombudsman has also confirmed that adjudicators are paid bonuses dependent on the number of cases they close. [ [http://business.timesonline.co.uk/tol/business/money/article827380.ece Can you trust the Ombudsman?] ] .
* Questions as to their impartiality [ [http://www.europarl.europa.eu/comparl/tempcom/equi/written_evidence/20070130_neill_summary_en.pdf Lord Niell's report to the European Parliament's EQUI inquiry] ] due to the manner in which they're funded and the financial services and/or career civil servant backgrounds of their board. [ [http://www.financial-ombudsman.org.uk/about/board.html Financial Ombudsman Service board] ] [ [http://www.publications.parliament.uk/pa/cm200506/cmhansrd/vo060314/text/60314w25.htm Questions in the Houses of Parliament regarding the Financial Ombudsman Service] ] . 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. [ [http://www.financial-ombudsman.org.uk/publications/ar07/dealt.html Financial Ombudsman Annual Review] ] . Of the minority of cases which have been found in favour of the consumer, there have been complaints that the awards are inadequate. [ [http://www.thehuntreview.co.uk/submissions/54_grenet.pdf Evidence for submission to the Lord Hunt Review of the Financial Ombudsman Service] ]
*There is no effective way to challenge an ombudsman's decision. [ [http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article531901.ece City fears all-powerful Ombudsman] ] 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 decisions 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 [ [http://www.opsi.gov.uk/ACTS/acts2000/ukpga_20000008_en_1 Financial Services and Markets Act 2000] ] 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" [ [http://www.practicallaw.com/1-201-0624 Financial Ombudsman decisions: beyond challenge?] ] . 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. [ [http://business.timesonline.co.uk/tol/business/money/consumer_affairs/article1086866.ece Public turns away from ombudsman service] ]

Impartiality

The Financial Ombudsman Service publishes the proportion of complaints it upholds in favour of consumers [ [http://www.financial-ombudsman.org.uk/publications/ar08/dealt.html#ar003 Financial Ombudsman Service annual review 2007/08 - outcome of cases] ] ranging (in 2007/08) from 16% to 84%, depending on the financial product concerned. 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 [ [http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2005/03/09/cmlorn09.xml Sunday Telegraph - We should stop throwing stones at the ombudsman] ] [ [http://www.europarl.europa.eu/comparl/tempcom/equi/written_evidence/20070130_neill_summary_en.pdf Report to the European Parliament's EQUI inquiry by Lord Neill on behalf of the Equitable Members Action Group, a pressure group representing dissatisfied Equitable Life investors] ] [ [http://www.publications.parliament.uk/pa/cm200506/cmhansrd/vo060314/text/60314w25.htm MP questions in Parliament relating to the Financial Ombudsman Service] ] [ [http://www.ftadviser.com/MortgageAdviser/Mortgages/Comment/article/20080604/135f1252-2c05-11dd-bdfc-0015171400aa/when-there-has-been-an-industry-failure-on-this-large-scale-then-everyone-gets-tainted.jsp Mortgage Adviser - The Bastion of financial fairplay] ] [ [http://business.timesonline.co.uk/tol/business/money/article827380.ece The Times - Can you trust the Ombudsman?] ] [ [http://www.theherald.co.uk/search/display.var.2303780.0.banking_complaints_justified.php The Herald - Banking complaints justified] ] .

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 [ [http://www.which.co.uk/press/press_topics/campaign_news/personal_finance/hunt_review_apr09_571_136149.jsp Which? - Financial Ombudsman Service is the unsung hero] ] [ [http://www.guardian.co.uk/money/2007/dec/23/consumeraffairs The Observer - A garland to the Financial Ombudsman Service] ] . Some consumers have questioned the amount of redress awarded by the ombudsman [ [http://www.thehuntreview.co.uk/submissions/54_grenet.pdf Evidence for submission to Lord Hunt's Review of the Financial Ombudsman Service] ] while many firms expect the ombudsman to apply the compensation cap rigidly [ [http://www.thisismoney.co.uk/retirement/article.html?in_article_id=431595&in_page_id=6 Mail on Sunday - Compensation rules wrecked my pension] ] .

Budget and staffing levels

The entire FOS 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 FOS planned to reduce staff numbers to 600 [ [http://news.bbc.co.uk/1/hi/business/7006252.stm Financial Ombudsman to cut staff] ] .

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 [ [http://www.financial-ombudsman.org.uk/publications/plan-budget.htm Financial Ombudsman Service corporate plan & budget] ] [ [http://www.guardian.co.uk/money/2004/jul/26/business The Guardian - Ombudsman overrun with mis-selling complaints] ] .

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 [ [http://www.financial-ombudsman.org.uk/faq/answers/complaints_a6.html Financial Ombudsman Service - frequently-asked questions] ] . If the consumer with the complaint "accepts" a final decision, it is binding on both parties and enforceable in court [ [http://www.thisismoney.co.uk/saving-and-banking/article.html?in_article_id=410722&in_page_id=7 ThisIsMoney - Resolving financial disputes] ] [ [http://business.timesonline.co.uk/tol/business/money/article825676.ece The Times - How to lodge an effective complaint] ] .

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 [ [http://www.thisismoney.co.uk/campaigns/bankcharges/article.html?in_article_id=422234&in_page_id=507 Daily Mail - Ombudsman quicker on bank charges] ] [ [http://www.mirror.co.uk/news/money/city/2007/06/13/claims-engulf-courts-89520-19287828/ The Mirror - Claims engulf courts] ] [ [http://www.which.co.uk/press/press_topics/campaign_news/personal_finance/hunt_review_apr09_571_136149.jsp Which? - Hunt Review supports Which? call for ombudsman to remain free to consumers] ] [ [http://news.bbc.co.uk/1/hi/programmes/working_lunch/6253477.stm BBC - Banks backing down over charges] ] as the outcome of court cases can be unexpected and disappointing [ [http://news.bbc.co.uk/1/hi/business/6692559.stm BBC - Lloyds wins second charges case] ] .

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 [ [http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article531901.ece The Times - City fears all-powerful Ombudsman] ] . The difficulty in winning a judicial review is that the Financial Services and Markets Act 2000 [ [http://www.opsi.gov.uk/ACTS/acts2000/ukpga_20000008_en_1 Financial Services and Markets Act 2000] ] 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" [ [http://www.practicallaw.com/1-201-0624 Financial Ombudsman decisions - beyond challenge?] ] . 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.

Accountability

The board of the Financial Ombudsman Service [ [http://www.financial-ombudsman.org.uk/about/board.html Financial Ombudsman Service - board members] ] 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 Committee 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 [ [http://www.financialombudsman.co.uk/about/foi.htm Financial Ombudsman Service and Freedom of Information] ] .

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 [ [http://www.financial-ombudsman.org.uk/publications/ar08/complained.html#ar4 Financial Ombudsman Service - how consumers rate the service] ] [ [http://www.financial-ombudsman.org.uk/publications/ar08/who.html#ar4 Financial Ombudsman Service - how businesses rate the service] ] .

Customers of the Financial Ombudsman Service - both consumers and businesses - can seek redress from the Independent Assessor [ [http://www.financial-ombudsman.org.uk/about/IA_terms_reference.htm The Independent Assessor and his terms of reference] ] if they are unhappy with the level of service they have received [ [http://www.financial-ombudsman.org.uk/about/our-service-standards.htm The Financial Ombudsman Service - service standards] ] .

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" [ [http://www.ocpa.gov.uk/~/media/assets/www.ocpa.gov.uk/codeofpractice_aug05%20pdf.ashx Office of Commissioner for Public Appointments Code of Conduct] ] .

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 [ [http://www.financial-ombudsman.org.uk/publications/ar03/ar03-assessor.htm The Independent Assessor's annual report 2002/03] ] [ [http://www.financial-ombudsman.org.uk/publications/ar04/ar04-assessor.htm The Independent Assessor's annual report 2003/04] ] [ [http://www.financial-ombudsman.org.uk/publications/ar05/ar05-assessor.htm The Independent Assessor's annual report 2004/05] ] [ [http://www.financial-ombudsman.org.uk/publications/ar06/ar06-assessor.htm The Independent Assessor's annual report 2005/06] ] [ [http://www.financial-ombudsman.org.uk/publications/ar07/ia_report.html The Independent Assessor's annual report 2006/07] ] [ [http://www.financial-ombudsman.org.uk/publications/ar08/ia_report.html The Independent Assessor's annual report 2007/08] ] .

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

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-executive board of the Financial Ombudsman Service [ [http://www.thehuntreview.org.uk/ The Lord Hunt Review website] ] .

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" [ [http://dictionary.reference.com/browse/independent Dictionary definition of the word independent] ] review, focusing on the openness and accessibility of the Financial Ombudsman Service [ [http://www.financial-ombudsman.org.uk/news/updates/openness_accessibility.html Lord Hunt of Wirral engaged to lead "independent" review of the Financial Ombudsman Service] ] .

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 [ [http://www.thehuntreview.org.uk/submissions/submissions.html Lord Hunt's review of the Financial Ombudsman Service] ] . Complaints have been made that consumer submissions were either not published or were edited before publication [ [http://www.lightbluetouchpaper.org/2008/01/23/financial-ombudsman-losing-it/ Foundation for Information Policy Research (FIPR) - comments on FIPF's submission to Lord Hunt's review] ] [ [http://www.thehuntreview.org.uk/submissions/44_FIPR.pdf Foundation for Information Policy Research (FIPR) - FIPR's submission to Lord Hunt's review, as published on Lord Hunt's review-website] ] . 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 [ [http://www.thehuntreview.org.uk/updates/FOS_Report.pdf Opening up, reaching out and aiming high - an agenda for accessibility and excellence in the Financial Ombudsman Service] ] . 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 [ [http://www.publicinvolvement.org.uk/2008-05-May/TheHuntReviewoftheFinanci.php PublicInvolvement's blog on Lord Hunt's review of the Financial Ombudsman Service] ] [ [http://blog.appgifs.org.uk/2008/04/hunt_review_will_move_ombudsma.html David Worsfold's blog on Lord Hunt's review of the Financial Ombudsman Service] ] . 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.

ee also

*Bank charges

References

External links

* [http://www.financial-ombudsman.org.uk Official website]


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