Financial Ombudsman Service

The Financial Ombudsman Service is an ombudsman in the United

Kingdom. It was established in 2000, and given statutory powers in 2001 by
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.[2] [3] [4]
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.[5]
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 [6]
[7]
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.[8]
Funding
The Financial Ombudsman Service is funded by the UK's financial services sector through a
combination of statutory levies and case fees.[9] [10] 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 2013/2014 the ombudsman found 58% in favour of
consumers.[11]
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.[12] [13] [14] [15] [16] [17]
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.[18] [19] Some consumers have
questioned the amount of redress awarded by the ombudsman [20] 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.[21]
Various websites have been set up to complain about the Financial Ombudsman's partiality -
usually by people who disagree with particular ombudsman decisions.[22] [23]
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:[24]
• 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%.
• the most complained about financial product is currently PPI, followed by complaints
about Payday Loans.
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. The BBC reported in September 2007 that the ombudsman planned to
reduce staff numbers to 600, reflecting the decline in mortgage endowment complaints.[25] By
December 2009 ombudsman staff had increased to over 1,000 - reflecting a substantially
increased workload of 200,000 cases. Currently there are 4,500 people working at the
ombudsman – reflecting a substantially increased workload of over half a million cases last year
(2014/2015).
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.[26] [27]
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.[28] If the consumer with the
complaint accepts a final decision, it is binding on both parties and enforceable in court. [29] [30]
[31]

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 [32] [33] [34] [35] as the outcome of court cases can be
unexpected, disappointing and costly.[36]
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.[37] The difficulty in winning a judicial review
is that the Financial Services and Markets Act 2000 [38] 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".[39]
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".[40] 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[41] is appointed by the Financial Conduct
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.[42] [43]
Customers of the Financial Ombudsman Service - both consumers and businesses - can seek
redress from the Independent Assessor [44] if they are unhappy with the level of service they
have received.[45]
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.[46]
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.[47] [48] [49] [50] [51] [52]
Triennial reviews
The non-executive board of the Financial Ombudsman Service commissions three-yearly
external reviews of the service.
Chief ombudsmen
• Walter Merricks, 2000–2009
• Natalie Ceeney, 2010–2013
• Caroline Wayman, 2014 to present
Criticism
• Timeliness - In the 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 than others (notably, mortgage
endowments and payment protection insurance (PPI) due to the sheer volume of
complaints received by the service.[53] The ombudsman’s published annual review
(2012/2013) showed 58% of all disputes were sorted out within six months – and 43%
of non-PPI cases within three months.[54]
• Questions as to their impartiality[55] due to the manner in which they're funded by the
financial services, and that many employees have worked for financial services firms,
mostly as solicitors who make up 38% of their brethren.[56] [57] Though the ombudsman
service currently upholds over 49% of complaints in favour of the consumer, there have
been complaints that the awards are inadequate.[58]
• 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.[59]
• Lack of fifteen-year long-stop: There is no fifteen-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
fifteen-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.
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