Download UK Financial Ombudsman Service

Collective Redress Conference December 2016
The Financial Ombudsman Service (FOS) has been in place since
2001. But it brought together a number of existing financial services
ombudsman schemes. An ombudsman has been an important feature
of alternative dispute resolution in financial services for many years.
The first scheme, the Insurance Ombudsman Bureau, was set up in
1981. So for 30 years or so, consumers have had access to a free,
independent, impartial and informal way of settling disputes with their
financial service providers. Court action has always been costly and
beyond the scope of many consumers especially where the amount
involved may be modest (but possibly still very important to the
consumer).
An ombudsman deals with individual complaints looking at each on the
basis of its own facts and circumstances. FOS was not set up to
provide collective redress although that has sometimes been the
practical effect of dealing with such mass issues as the mis-selling of
mortgage endowment policies or payment protection insurance (PPI).
Since 2001 FOS has resolved 2.6 million complaints; 1.6 million of
these related to PPI.
Some background
FOS was set up under statute (Financial Services and Markets Act
2000) and operates under rules (DISP rules) made by the regulator, the
Financial Conduct Authority (FCA). It covers the full range of regulated
products and services. So complaints might be about life-changing
matters like pensions or critical illness claims. Or they might be about
minor, but annoying, errors with a current account. Retail financial
services overall are strengthened when consumers know there is
somewhere they can take their problem if something goes wrong. It
means they are more likely to engage with the market which increases
competition – all consumers of financial products and services benefit,
not just those who suffer a problem and make a complaint.
Critically, the ombudsman is required to make decisions that are fair
and reasonable in all the circumstances of the individual case taking in
to account the law, regulator’s rules and guidance, industry codes of
practice and what the ombudsman considers to have been good
industry practice at the time of the event complained of. So outcomes
based on fairness may differ from those achieved through traditional,
judicial channels. There’s no appeal from the ombudsman’s decision
although the decision making itself can be challenged by judicial review.
Binding awards of up to £150,000 can be made with non-binding
recommendations for sums above this. And the ombudsman can make
awards for non-financial loss, like distress and inconvenience or pain
and suffering.
Complainants are eligible if they are individuals or micro-enterprises
and time limits to bring complaints apply that are broadly in line with
those of the courts although there is no 15-year longstop. There are
also territorial jurisdiction requirements.
How the ombudsman works
The FOS is geared towards resolving individual complaints. So the
emphasis is on accessibility and informality. There are many different
routes of entry to the scheme – phone, letter, email, web chat, social
media etc. Non-English speakers can be accommodated by an instant
translation service. As much is done over the telephone as possible so
that disputes can be resolved quickly, efficiently and cheaply.
The ombudsman model works well to rebalance disputes where there is
significant asymmetry between the parties – which is usually the case.
The ombudsman’s inquisitorial remit means that it isn’t down to the
consumer to ‘prove’ all their arguments as they would in court – people
often don’t know exactly what’s gone wrong, just that something has.
And evidence is not treated the same as it would be in court.
FOS aims to make the customer journey as painless as possible for the
consumer. So the number of ‘touches’ involved is reduced to a
minimum with information being gathered only once and just one
investigator dealing with the consumer throughout, if possible. The
investigator, having considered the file and having made any additional
enquiries needed, will form a view and attempt to settle the dispute. In
90% of cases the parties reach agreement at this stage because the
business accepts that it did something wrong and agrees to put it right,
or the consumer accepts that their complaint can’t succeed.
But if they can’t agree either party is entitled to ask for an ombudsman’s
decision. This is the final stage in the process and awards are binding if
accepted by the consumer within the time specified. If the decision isn’t
accepted the consumer is free to take the matter to court if s/he wants
to. All ombudsman decisions are published on the FOS website.
The impact of ombudsman findings
Consumer disputes are decided at FOS on the basis of their individual
facts – so there can’t be any direct read-across from one case to
another. And an ombudsman’s decision doesn’t create precedent.
Since the first ombudsman scheme was set up, the majority of retail
consumer disputes have been settled in these forums rather than in
court. That means there is little formal law on consumer issues. There
is, however, a large body of ombudsman ‘lore’ which demonstrates
what constitutes fairness in particular situations and outlines
approaches which can then be applied to specific sets of facts in
individual complaints.
And the ombudsman’s experience means they have unparalleled
insight into behaviours and trends across the whole of the financial
services industry. That insight is shared through FOS publications and
reports, for instance on age-related complaints or financial scams, and
through liaison with the regulator, government, trade and consumer
bodies and the press. The FCA requires businesses to take into
account decisions they have received from the ombudsman so that
systemic issues can be identified and addressed.
Wide scale impact
Perhaps the most visible effect of the FOS’s findings is the recent
change to insurance law. Previously, all UK insurance law was based
on the Marine Insurance Act of 1906 which required anyone proposing
for insurance to demonstrate utmost good faith by disclosing anything
the insurer may consider material to the risk. This may be fine for
commercial shipping contracts where the parties are equal but the
consequences of getting it wrong might be very serious for the retail
consumer who could hardly second-guess what the insurer would want
to know.
Over a number of years FOS developed an approach to
misrepresentation, in line with the Association of British Insurers’
Statements of Good Insurance Practice, which recognised that
consumers wouldn’t necessarily know what an insurer would think was
material to the risk and required that the insurer should ask clear
questions to get the information it needed. This approach was
considered by the Law Commission and adopted in the Consumer
Insurance (Disclosure and Representation) Act 2012 which came into
effect in April 2013. So now an approach which the ombudsman
applied to individual complaints is imposed across the industry so that
all consumers forming insurance contracts have the benefit of it, and
not just those who complain.
And, of course, mass claims like mortgage endowments and PPI have
required the development of processes and handling in a way that has
impacted on consumers generally with many complaints being settled
without individual consideration.
Other influences
But there are many less immediately obvious examples of how the
ombudsman’s findings can help other consumers. FOS has a duty to
tell the regulator what it sees and it has always shared insight and
information to help the regulator (and its predecessor, the Financial
Services Authority) carry out its regulatory role. The FCA’s
interventionist approach means that concerns about businesses or
issues can be followed up through supervision, and enforcement action
taken where appropriate. This has important, beneficial consequences
for all consumers – but is, of course, extremely hard to measure.
By way of example, over a period of three years FOS raised a number
of concerns with the FCA about a particular business and its PPI
complaint-handling process. This resulted in a fine of over £2 million
and a remediation exercise meaning nearly 5,000 consumers received
redress. Another business unfairly rejected complaints because it
thought its sales processes were both compliant and robust. Sharing
FOS experience and working with FCA meant a change of approach on
the part of the business and the review of a very significant number of
complaints.
And explaining its approach to issues through the newsletter
Ombudsman News, material on the website, published decisions and
outreach events means that FOS helps businesses understand exactly
what fairness means in particular circumstances. Pointing bankers and
insurance underwriters beyond the precise wording of their account
terms or policies to consider what actually happened in a case benefits
all their customers. Because rigidly applying policy or account terms
and conditions without regard to the customer as a person can, and
does, cause unfairness.
Another area where the FOS has influence is with claims management
companies (CMCs). These commercial organisations thrive in the mass
complaints areas of mortgage endowments and PPI. They bring
complaints on behalf of consumers and receive a proportion of any
compensation paid. A consumer does not need a representative to
bring a complaint to the ombudsman whose procedures are easy to
follow – even for those with vulnerabilities. And the CMCs often bring
speculative claims to businesses wasting time and money. FOS has
worked closely with CMCs to ensure that only appropriate cases are
brought and that the necessary information is provided. Ensuring they
understand FOS’ approach means that many issues can be resolved
without the need for formal complaints. So, for instance, last year 80%
of complaints about packaged bank accounts were brought by CMCs –
that figure has now fallen to 40%.
FOS also works with the media to provide information about complaint
trends and issues. As an example, publication of the insight report on
financial scams attracted media attention to raise awareness of the
tactics of fraudsters and help consumers avoid problems.
Although impact is hard to measure, there are some instances where it
can be gauged quite accurately:
In 2011 the ombudsman issued a final decision concluding that the
cloud of volcanic ash that had impacted on travel leading to a surge of
travel insurance claims for delay, could amount to adverse weather
conditions meaning that many claims would be paid. The decision
reflected the fact that the majority of insurers had settled these claims
where their policies did not specifically exclude this risk. The business
in question brought proceedings for judicial review to challenge the
ombudsman’s decision but the court rejected this challenge. The
business then agreed not to pursue its legal action and several hundred
complaints were settled on the back of this single complaint.
And:
In June 2012 the ombudsman issued a final decision in which he found
that a business had not handled fairly its decision to withdraw from the
pet insurance market. The approach the ombudsman took led to the
business offering a completely new policy to the complainant and
additionally to all those customers who had been adversely affected by
its decision.
Caroline Mitchell
November 2016