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minimising customer grievances in a challenging environment

speech by Tony Boorman, decisions director and principal ombudsman, at the Future of Retail Banking annual conference

London, 25 November 2009

Thank you for inviting me to address the 12th annual conference on the future of retail banking.

I want to explore how we can all better handle complaints - not just because that is an important objective in its own right - but because by doing so, we can help avoid problems arising in future and underpin confidence in financial services today.

And this is a particularly appropriate day to have that discussion, as we all digest the Supreme Court's judgment on current account charges issued this morning. As you know, we have not made formal decisions on bank-charge issues for personal account customers in the light of the Court process that has been underway. That legal process is now complete, and the FSA waiver on complaints handling has lapsed.

The ombudsman service will be considering the Supreme Court's judgment with care. However, my initial reading of the Judgment suggests that none of the cases we have put on hold awaiting the outcome of the court process will now succeed.

the role of the ombudsman service

But let me start with an important note of context and background. The work of the ombudsman service - focusing as it inevitably must on complaints arising from actual and perceived service failings and mis-selling - does not describe the general relationship between a customer and his/her bank.

It does not even describe the typical experience of people who have cause for a complaint - as most complaints are concluded without any referral to the ombudsman.

Our role is clearly delineated - our task is to resolve individual complaints that a financial business has been unable to resolve with its customer. So while some describe us as part of the regulatory infrastructure, our function is not regulatory - rather it is more akin to that of the courts.

And just like the courts, the ombudsman service is independent of the parties in dispute, and operationally independent of both government and regulators.

By using our specialist knowledge of the financial services industry, and by taking an informal and proportionate approach, we can resolve matters both more rapidly and at less cost than the courts are able to. Indeed, our role has become so much an accepted part of the landscape that retail insurance and banking disputes are now rarely seen in the courts.

So we also have an important responsibility to feedback our experience - to interested parties generally and to policy-makers in particular. Unlike the courts, we engage directly with regulators, the financial services industry and consumer bodies about the lessons learned from our work.

A recent positive example is how our work on insurance "non-disclosure" has directly shaped much of the Law Commission's proposal for insurance law reform. And thousands of your customers see the impact of our decisions reflected day to day in the good advice offered by the financial "agony aunts and uncles", in the money pages of their newspapers and other consumer media.

As ombudsman news and our annual reviews attest, the heart of our work remains resolving individual problems about individual circumstances.

We now cover almost all financial service transactions from spread betting to pet insurance. Just a few years ago we took on responsibility for complaints relating to the consumer credit sector and this month our remit extended to money transfer businesses. In all, well over 100,000 businesses now come within our jurisdiction - although as I will explain later, around 90% of our work comes from just 142 financial businesses.

So in line with Lord Hunt's recommendations in his recent independent review of the Financial Ombudsman Service, we are working to make our service more transparent and accessible.

Earlier this year we published for the first time complaints data about individual named businesses - showing the number and outcome of cases referred to the ombudsman service. I hope you have taken the opportunity to review this data.

Our website is giving more information than ever before about how we tackle complaints and the thinking behind our decisions. We are also working with consumer groups to enhance the accessibility of our service for customers. And we are strengthening our liaison arrangements with financial businesses and trade associations to help avoid complaints.

Our objective is to break down barriers to using our service - not just so that the widest possible range of customers can make use of our service but also so that businesses of all sizes can better observe our work in practice and understand our approach to common causes of complaint.

tackling high profile issues

But as you will know, the work of the Financial Ombudsman Service over the past decade - and much of the comment about it - has been dominated by a small number of high profile issues: mortgage endowments, dual variable-rate mortgages, "splits", overdraft and credit card charges, and payment protection insurance (PPI). Complaints about these six topics have dominated our workload for much of the decade. In fact ,the list above accounts for over a half our work - half of the 900,000 cases we have handled since 2000.

And it won't have escaped your notice that the banking sector has been at or near the heart of all but one of these issues. And so the resolution of these high-profile complaints has largely shaped our relations with the banking industry, its customers and regulators for much of the past nine years.

The effect of these high profile issues has been corrosive. Not surprisingly, each of these issues has been, and indeed remains, characterised by strong - and strongly opposing - viewpoints.

Even how all this should be described is far from agreed. One man's "mis-selling scandal" is another's "consumerist bandwagon". But no one can doubt the significance of these issues for financial businesses and their customers.

However, all too often the reality of these cases has been lost behind what sometimes seems little better than tribal slogans from the competing parties.

Certainly, the many who have been happy to stand back and "grand stand" have been all too ready to ignore the genuine complexity of some of the legal and evidential questions that have had to be resolved. The simple certainties available to those in the stands have been far from the experience of those of us called upon to referee on the pitch.

Certainly from my own perspective, it sometimes seems that we have been called upon to referee a game where the rule book is not always respected. And whatever the genuine debate about how some of the rules should be interpreted, too many seem to have forgotten the underpinning principles of fair play.

Not unexpectedly, the referee has been characterised by the losing side as myopic, and far from impartial - no doubt some have questioned his parentage. Others have made seductive calls for changes in the way we should work - slowing down and introducing greater formality into a service that Parliament has required to resolve cases promptly and informally.

But throughout the challenge presented by these issues, the ombudsman's role has remained the search for appropriate outcomes on a case by case basis. The difficulty and costs of achieving this, in the face of potential mass claims and mis-selling, are all too clear.

Attempting to respond to these issues largely through individual complaints has a mixed record. On the positive side, it has delivered redress effectively to tens of thousands of customers - and explained clearly and patiently to others why compensation is not in fact due.

But the reliance on individual complaints has meant that consumers without the knowledge and ability to complain have lost out. And meanwhile, those financial businesses that have wanted to treat their customers fairly have seen others taking approaches to complaints seemingly designed to avoid compensation costs, with little apparent risk of effective censure.

No one can be too surprised that all this has fed the growth of claims-management companies. These are the companies that are dedicated to talking up failure and talking down confidence in financial institutions - while at the same time taking for themselves unhealthy chunks of compensation payments rightly intended for consumers.

But perhaps the most regrettable fact is that there seems to be a weary assumption that this state of affairs is in some way inevitable.

Certainly, consumer groups now seem to expect such indications of collective failure to be a permanent feature of the financial services sector - and of the banking industry in particular. Even industry leaders sometimes seemed resigned to the thought that further large-scale disputes are an inevitable feature of relations with their customers.

It is hard to have confidence in any industry that assumes that large-scale service failures are a given.

Most independent observers agree that the ombudsman service has too often been left to resolve issues that should neither have occurred on the scale they did, nor should have been tackled primarily through the uncertain medium of individual complaints.

That was certainly the conclusion Lord Hunt reached in his independent review last year. He argued that more needed to be done to tackle these systemic issues at source - rather than through mass complaint-action with the ombudsman as referee. And he said that new ways needed to be found to tackle mass claims when they did arise. A fresh look needed to be given to the overall system - starting with the incentives on financial businesses and their customers.

So it is timely to think again about how these issues should be identified and resolved - and how the financial services industry, ombudsman and regulators should achieve the changes required to ensure that confidence in financial services can flourish.

Agreement that the present arrangements need to be improved is, of course, only a first step. Finding workable alternatives has - at least to date - been harder to achieve. But there are, in my view, some positive indications.

First, I think it is now accepted that the primary responsibility must rest with financial businesses themselves. I know that many firms are taking action to enhance their own conduct risk-management - and to improve the way they handle complaints.

But it is also agreed that the regulator has a critical role to play here. Issues need to be identified early and tackled with care and vigour. So the steps by the Financial Services Authority (FSA) to enhance its work on retail conduct-risks, and its focus on outcomes, is welcome.

The recent announcement on mortgage payment protection insurance (MPPI) provides a good example of how the regulator, working with both the industry and consumer groups, can tackle systemic issues, supported by the role of an independent ombudsman.

The ombudsman may still need to handle individual cases where the particular facts and circumstances might reasonably suggest the general approach does not fit. But the FSA's actions will deal promptly and fairly with the central issues in dispute, ensuring compensation is paid where it is due and helping avoid the need for large numbers of individual complaints.

The Financial Services Bill currently proposes two important changes here:

  • providing for collective actions on behalf of consumers through the courts in certain circumstances; and
  • modernising the powers available to the FSA to require businesses to review past actions and compensate customers, even when complaints are not raised.

These are important proposals to tackle cases of widespread customer detriment - and to strengthen the existing incentives on financial businesses to consider the long-term interests of their customers.

No doubt the Government's proposals will be the subject of intense debate in the weeks ahead. We, too, will be studying them with care - and will work with Government and the FSA to implement any changes that the legislation requires.

Of course, we cannot realistically hope for large-scale mis-selling issues to be resolved without cost and controversy. I recognise that new powers for regulators are unlikely to be welcomed by the regulated.

Similarly, there will be questions about any consumer redress process that relies on the courts. As we have seen today (25 November 2009) with the Supreme Court ruling, court processes can be time consuming and expensive. And they may not ultimately result in the direct resolution of individual consumer disputes.

Much remains to be done, then. The challenge is to deliver prompt and fair redress for consumers when they have been mistreated - avoiding unnecessary administrative and other costs - while ensuring that a business that has treated its customers fairly will be protected from unwarranted interventions, reputational damage and costs.

The framework within which this can be achieved, and the role the ombudsman should play, is a matter for Parliament.

But whatever the outcome of these wider public-policy debates, the ombudsman will, in my view, continue to have an important role for consumers and financial businesses.

This role is to provide an impartial and independent service, wherever unresolved individual complaints require individual attention. And as part of this work, our role is to help underpin customer confidence in financial services.

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