Alternative disputeAlternative disputeresolution of financial resolution of financial complaints in the UK complaints in the UK

Walter MerricksWalter Merrickschief ombudsmanchief ombudsman

David ThomasDavid Thomascorporate director and principal ombudsmancorporate director and principal ombudsman

Financial Ombudsman ServiceFinancial Ombudsman Service

 

UK =UK =

United Kingdom ofUnited Kingdom of

Great Britain and Great Britain and

Northern IrelandNorthern Ireland

England, Wales, Scotland England, Wales, Scotland

and Northern Irelandand Northern Ireland

 

60 million people 60 million people

£1 = ¥200£1 = ¥200

Firm = financial businessFirm = financial business

 

Financial Services Authority (the regulator)

Financial Ombudsman Service (adjudicates on unresolved disputes)

Financial Services Compensation Scheme

where we fit in …

 

Financial Services Authority (FSA)Financial Services Authority (FSA)

makes and polices the rulesmakes and polices the rules supervises financial firmssupervises financial firms prudential regulationprudential regulation conduct-of-businessconduct-of-business some self-regulation through codessome self-regulation through codes

 

Financial Ombudsman Service (FOS)Financial Ombudsman Service (FOS)

resolves individual disputesresolves individual disputes an alternative to the civil courtsan alternative to the civil courts informal / quicker / cheaperinformal / quicker / cheaper not a regulatornot a regulator some decisions can have big effectsome decisions can have big effect

 

Financial Services Financial Services Compensation Scheme (FSCS)Compensation Scheme (FSCS)

safety netsafety net claims against ‘dead’ firmsclaims against ‘dead’ firms contributions from ‘live’ firmscontributions from ‘live’ firms

 

Ombudsmen …Ombudsmen …Ombudsmen …Ombudsmen …

 

Characteristics …Characteristics … citizen/consumer v state/institutioncitizen/consumer v state/institution

deal with unresolved disputesdeal with unresolved disputes

free to citizen/consumerfree to citizen/consumer

flexible and informal processesflexible and informal processes

investigative procedureinvestigative procedure

 

… … characteristicscharacteristics wider dialoguewider dialogue

encouraging complaint resolutionencouraging complaint resolution

encouraging complaint preventionencouraging complaint prevention

 

Public sector ombudsmenPublic sector ombudsmen 1967: Parliamentary ombudsman

1973: Health service ombudsman

1975: Local government ombudsman

 

1981: Insurance Ombudsman1981: Insurance Ombudsman established by industry voluntarilyestablished by industry voluntarily in partnership with consumer bodiesin partnership with consumer bodies independent councilindependent council alternative to civil courtsalternative to civil courts but redress beyond the lawbut redress beyond the law binding on firm, but not consumerbinding on firm, but not consumer

 

Other financial ombudsmenOther financial ombudsmen Banking OmbudsmanBanking Ombudsman

Building Societies OmbudsmanBuilding Societies Ombudsman

Investment [Management] OmbudsmanInvestment [Management] Ombudsman

Personal Investment OmbudsmanPersonal Investment Ombudsman

 

FOS established by law …FOS established by law …

‘‘a scheme under whicha scheme under whichcertain disputes may be certain disputes may be resolved quickly and with resolved quickly and with minimum formality’minimum formality’

 

DisadvantagesDisadvantagescompared with courtscompared with courts centralisedcentralised cannot cover third partiescannot cover third parties

 

Advantages over courtsAdvantages over courts free to customerfree to customer draw line for firmdraw line for firm specialist knowledgespecialist knowledge informalinformal we mediatewe mediate we investigatewe investigate fair in the circumstancesfair in the circumstances

 

Who we cover …Who we cover …Who we cover …Who we cover …

 

26,000 financial firms …26,000 financial firms … banksbanks building societies (mortgage banks)building societies (mortgage banks) other mortgage lendersother mortgage lenders mortgage intermediariesmortgage intermediaries credit unionscredit unions electronic money institutionselectronic money institutions

 

… … 26,000 financial firms … 26,000 financial firms … insurance companiesinsurance companies insurance intermediariesinsurance intermediaries investment/pension companiesinvestment/pension companies investment/pension advisersinvestment/pension advisers stockbrokersstockbrokers

 

… … for these activities …for these activities … taking deposits, lending money andtaking deposits, lending money and

providing credit/debit/cash cards providing credit/debit/cash cards providing, arranging or advising on providing, arranging or advising on

mortgages mortgages providing, arranging or advising on providing, arranging or advising on

investments/pensions investments/pensions providing, arranging or advising on providing, arranging or advising on

insurance insurance

 

… … if they are providedif they are provided in the UKin the UK from the UKfrom the UK

 

We cover business done from We cover business done from all UK branches of:all UK branches of: UK firmsUK firms Foreign firmsForeign firms

We do not cover business done fromWe do not cover business done fromnon-UK branches:non-UK branches: even of UK firmseven of UK firms

 

Complainants coveredComplainants covered Customers, potential customers Customers, potential customers and some othersand some others individualindividual business (< ¥200 million turnover)business (< ¥200 million turnover) charity (< ¥200 million income)charity (< ¥200 million income) trust trust (< ¥200 million assets) (< ¥200 million assets) fromfrom UK and world-wide UK and world-wide

 

Complaint process …Complaint process …Complaint process …Complaint process …

 

Complainants heard Complainants heard about us from:about us from: the firmthe firm 29% 29% the pressthe press 28% 28% our literatureour literature 13% 13% friend/relativefriend/relative 10% 10% advice centreadvice centre 7% 7%

 

If complainant comes to FOS If complainant comes to FOS and has not complained to firmand has not complained to firm

FOS FOS refers complaint to firmrefers complaint to firm issues complaint formissues complaint form awaits complainant contactawaits complainant contact

 

What requires firms to do about complaints

8 weeks written response – final

ombudsman referral rights

4 weekswritten response –final or holding

5 business dayswritten acknowledge-ment and recorded as complaint

complaint unless resolved by close of next business day

 

Time limitsTime limits after final response letter or after final response letter or

8 weeks (if sooner) 8 weeks (if sooner) 6 months from6 months from

final response letter final response letter 6 years from event or 3 years6 years from event or 3 years

from knowledge (if later) from knowledge (if later) we can waive time limitswe can waive time limits

in exceptional circumstances in exceptional circumstances

 

sift andrespond cases

written enquiries

to casework

phone enquiries

 

final decision by ombudsman8%

termination/mediationby adjudicator42%

initial decision by adjudicator50%

case

 

Termination by adjudicatorTermination by adjudicator no reasonable prospect of successno reasonable prospect of success no loss/material inconvenienceno loss/material inconvenience fair settlement on offerfair settlement on offer court has dealt with meritscourt has dealt with merits more suitable for courtmore suitable for court legitimate commercial judgmentlegitimate commercial judgment[can ask for review by ombudsman][can ask for review by ombudsman]

 

MediationMediation by adjudicator by adjudicator evaluative mediationevaluative mediation by agreementby agreement

 

Initial decisionInitial decision by adjudicator by adjudicator initial viewinitial view (paper) investigation(paper) investigation power to compel evidencepower to compel evidence adjudicationadjudication[can ask for review by ombudsman][can ask for review by ombudsman]

 

Review by ombudsman (‘appeal’) Review by ombudsman (‘appeal’) request by either siderequest by either side additional evidence/argumentsadditional evidence/arguments possible hearing (rare)possible hearing (rare) ombudsman’s final decisionombudsman’s final decision if customer accepts, both boundif customer accepts, both bound otherwise, neither is boundotherwise, neither is bound [possibility of judicial review][possibility of judicial review]

 

We decide what is fair in the We decide what is fair in the circumstances of that casecircumstances of that casetaking into accounttaking into account lawlaw regulationsregulations regulator’s rulesregulator’s rules relevant codes relevant codes good industry practicegood industry practice

 

Outcome of casesOutcome of cases In about 35% of cases on averageIn about 35% of cases on average

we agree with the complainant we agree with the complainant But that reflects rates of 15% to 80%But that reflects rates of 15% to 80%

depending on firm and product depending on firm and product In about half the cases where we agreeIn about half the cases where we agree

with the firm, it had not explained with the firm, it had not explained properly to the complainant properly to the complainant

 

Redress …Redress …Redress …Redress …

 

Remedy

Generally, our aim is to put the complainant in the position they would have been in if the firm had not done something wrong

 

We can make the firmWe can make the firm

pay compensation up to ¥pay compensation up to ¥20 million20 million pay interestpay interest pay costs (rare)pay costs (rare)

We can recommend more than We can recommend more than ¥¥20 million20 million, but the excess is not binding, but the excess is not binding

 

Additionally, or alternatively, we can make the firm take ‘appropriate’ action

This might be to put something right, reconsider an application or simply to apologise

 

We cannot make the firmWe cannot make the firm

compensate other customerscompensate other customers in similar circumstances in similar circumstances

change its products,change its products, procedures or staff procedures or staff

 

Complying with awardsComplying with awards

a firm must comply promptly with any a firm must comply promptly with any award made by the ombudsman award made by the ombudsman

a complainant may enforce a money a complainant may enforce a money award or direction in the law courtsaward or direction in the law courts

 

Workload …Workload …Workload …Workload …

 

totalenquiries (615,000)

Enquiries to cases (111, 000)

written enquiries (285, 000)

phone enquiries (330, 000)

to casework

year ended 31 March 2005 …year ended 31 March 2005 …

 

banking and mortgages

general insurance

other investments

mortgage endowments

pensions

securities

current inflow …current inflow …

 

0

20,000

40,000

60,000

80,000

100,000

120,000

1998/99 1999/00 2000/01 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07 2007/08

number of new cases

 

>50% of complaints are about>50% of complaints are about the 11 largest groups the 11 largest groups

>15% of complaints are about>15% of complaints are about the 20 next largest groups the 20 next largest groups

<35% of complaints are about<35% of complaints are about the other 22,000 firms the other 22,000 firms

 

Resources …Resources …Resources …Resources …

 

StaffingStaffing 1 chief ombudsman1 chief ombudsman 2 principal ombudsmen2 principal ombudsmen 27 ombudsmen27 ombudsmen 1,000 other staff1,000 other staff

 

0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

2000/01 2001/02 2002/03 2003/04 2004/05 2005/06

Business Years

¥¥

Cost per caseCost per case

 

CostCost

free to consumer free to consumer

average cost of case = average cost of case = < < ¥100,000¥100,000

firms pay yearly levy (25% of cost)firms pay yearly levy (25% of cost)

firms pay case fee (75% of cost)firms pay case fee (75% of cost)

 

Yearly levyYearly levybased on market sharebased on market share bank pays ¥1bank pays ¥1

for every 2 bank accounts for every 2 bank accounts insurance company pays ¥1insurance company pays ¥1

for every ¥ for every ¥100100 of premiums of premiums small intermediary pays ¥10,000small intermediary pays ¥10,000

 

Case feeCase fee

¥72,000¥72,000 fee per case fee per case but first two cases per year are free but first two cases per year are free

only 7% of 26,000 firmsonly 7% of 26,000 firms covered pay case fees covered pay case fees

11 largest groups pay11 largest groups pay >50% of case fees >50% of case fees

 

Information …Information …

consumer enquiries 0845 080 1800consumer enquiries 0845 080 1800enquiries@financial-ombudsman.org.ukenquiries@financial-ombudsman.org.uk

technical advicetechnical advice 020 7964 1400 020 7964 1400technical.advice@financial-ombudsman.org.uktechnical.advice@financial-ombudsman.org.uk

publicationspublications 020 7964 0092 020 7964 0092publications@financial-ombudsman.org.ukpublications@financial-ombudsman.org.uk

public websitepublic websitehttp://www.financial-ombudsman.org.ukhttp://www.financial-ombudsman.org.uk

 

Europe …Europe …

 

EUROPEAN UNION (EU)EUROPEAN UNION (EU)Austria, Belgium, Cyprus, Czech Republic, Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden and United KingdomSpain, Sweden and United Kingdom

 

EUROPEAN UNION (EU)EUROPEAN UNION (EU)Austria, Belgium, Cyprus, Czech Republic, Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Slovakia, Slovenia, Poland, Portugal, Slovakia, Slovenia, Spain, Sweden, United KingdomSpain, Sweden, United Kingdom

EUROPEAN ECONOMIC AREA (EEA)EUROPEAN ECONOMIC AREA (EEA)European Union plus European Union plus Iceland, Liechtenstein and NorwayIceland, Liechtenstein and Norway

 

EEA ‘passport’ rightsEEA ‘passport’ rights

Financial firms authorised in one EEA Financial firms authorised in one EEA member state can provide services in or member state can provide services in or into any other EEA member stateinto any other EEA member state

For example –For example –UK-based internet bank directed at Spain UK-based internet bank directed at Spain and working in Spanishand working in Spanish

 

FIN-NETFIN-NET financial redress body networkfinancial redress body network refer cross-border complaintsrefer cross-border complaints advise on local lawadvise on local law meet six-monthlymeet six-monthly

http://europa.eu.int/comm/internal_market/finservices-http://europa.eu.int/comm/internal_market/finservices-retail/finnet/index_en.htmretail/finnet/index_en.htm

 

1998 European recommendation 1998 European recommendation on principles for redress bodieson principles for redress bodies

transparencytransparency due processdue process independenceindependence

legalitylegality effectivenesseffectiveness

 

Alternative disputeAlternative disputeresolution of financial resolution of financial complaints in the UK complaints in the UK

Walter MerricksWalter Merrickschief ombudsmanchief ombudsman

David ThomasDavid Thomascorporate director and principal ombudsmancorporate director and principal ombudsman

Financial Ombudsman ServiceFinancial Ombudsman Service