skip tocontent

annual review of 1 April 2001 to 31 March 2002 chief ombudsman's report

At the beginning of the year we set ourselves the ambitious target of coping with a predicted increase of up to 40% in the number of complaints we resolved - with only a 20% increase in budget. I am pleased to report that we met this target, reducing our unit cost by 9%, while increasing the speed with which we dealt with complaints.

This is a particularly significant achievement, given that this was the year that ‘N2’ finally arrived - involving the introduction of a new case-handling system and the implementation of the new framework of rules under the Financial Services and Markets Act.

value for money

Following our consultation in the early months of 2001, the Financial Services Authority (FSA) approved our budget of £27.6 million for the year ended 31 March 2002. This budget was based on the assumption that:

  • new cases would rise 20% - from 31,700 to 38,000;
  • we would resolve and close 38,500 cases (up from 28,000);
  • our total headcount (the number of employees) would increase to 470;
  • we would introduce a new computerised case-handling system;
  • our unit cost - the benchmark against which we judge our cost-effectiveness - would fall to £688;
  • we would close 70% of cases within six months and 95% of cases within twelve months.

By 31 March 2002, the number of new cases had risen not by 20% but by 38% - to 43,330. Despite this larger than expected increase, we met the targets set out in our budget and resolved and closed 2% more cases than the target we had set ourselves. This meant we achieved a unit cost of £684 - better than our target figure of £688.

This increase in productivity is all the more pleasing because it took place while we were still adjusting to our new business process and case-handling system and coping with a rapidly rising number of complaints about mortgage endowments.

The chapter key facts and figures gives more details of our productivity and our costs and income.

quality initiatives

timeliness

In last year’s annual review we said we planned to raise the proportion of cases we close within six months to 70% and the proportion we settle within a year to 95%. We succeeded in meeting these targets, closing 73% of cases within six months and 96% within twelve months. We have now set new targets, aiming to close 45% of cases within three months and 75% within six months. All cases which have not been resolved within twelve months will be reported to our board.

These new timeliness targets reflect an approach that builds on the use of mediation and conciliation developed by the former Banking Ombudsman scheme. Our aim - wherever possible - is to resolve complaints at the earliest stages through informal, mutual settlements. This can reduce the need for lengthy and time-consuming investigations and formal ombudsman decisions. More information about the number of complaints we resolve at each stage of our complaints-handling process can be found in the chapter key facts and figures.

During the year we were able to resolve 41% of cases within the first three months. These were mostly disputes where we could bring the two sides together by mediation or conciliation - taking a fresh look at the facts and suggesting common ground.

Resolving disputes can take much longer if either the consumer or the firm requests a full detailed investigation, leading to the formality of an ombudsman’s decision - especially if the dispute involves particularly entrenched attitudes and complex facts. Factors such as the need to examine a large volume of paperwork (one particular complaint we handled recently involved five crates of files) or to seek expert third party opinion (for example, in medical insurance disputes) can also greatly lengthen the process. But our investigations need to be rigorous to stand up to close scrutiny, including by the courts.

Taking into account disputes where a full investigation was needed, the average time taken during the year to resolve and close a case was just over five months.

accessibility

The ombudsman service is here for everyone, not just for the articulate, letter-writing classes. We are also mindful that, increasingly, many people do not have the time to write formal letters to express their grievances. This is why we are developing ways to make it easier for people to complain by phone and by using our website.

Consumers need to fill in our complaint form - this is the way we can find out exactly what the problem is and how the consumer wants matters put right. But we are happy to help consumers by talking them through the form over the phone. We then fill in as much of the form as possible for them, and send it to them to check and sign. People who find completing forms difficult often prefer this approach. It is also more efficient for us, because we can encourage people to stick to the key facts. And we find that people are increasingly using the web version of our complaint form - if only because many of us now prefer to type, albeit with two fingers, than to fill in forms by hand!

Our aim is to ensure that no one is discouraged from using the ombudsman service because of language barriers or other difficulties. We provide information in alternative formats such as Braille, large print and audiotape, and we use TextType.

We also now deal more frequently with calls in languages other than English, using a phone-based interpreting service. During the year we have handled calls using this service in a wide range of languages, including Welsh, Spanish and Urdu. We publish our consumer material in the ten most commonly-spoken minority languages in the UK and can handle complaints in other languages on request (this year we have received paperwork in languages ranging from Albanian to Thai).

user surveys and quality assurance project

We aim to continually improve the quality and consistency of the service we provide. We plan shortly to introduce a series of internal benchmarks that will enable us to measure and report on the quality of our service. Timeliness is an important measure of our service, but our proposed quality benchmarks will also include the accuracy and consistency of our decision-making in individual cases.

We are also starting to monitor the extent to which people who bring their complaints to us are satisfied with our service. In June 2002 we will be sending out our first consumer satisfaction questionnaire. Later in the year we will extend this survey to capture the views of firms who deal with us.

We have carried out some demographic research to find out the types
of people who use our service. Some early results are shown in the chapter, key facts and figures.

dealing with complaints about us - and the role of the Independent Assessor

During the year we consolidated and revised the different procedures that the separate schemes used for handling complaints about themselves. We subsequently established a new procedure, set out in the leaflet our service standards: what to expect from us when we deal with your complaint against a financial firm.

This procedure is available both to firms and consumers. It involves a review of how we have handled a complaint against a financial firm - rather than being a way of challenging a decision we have made in relation to a complaint. The procedure can involve a final review by our Independent Assessor. The board of the Financial Ombudsman Service appointed Sir Edward Osmotherly CB (the former Local Government Ombudsman and former chairman of the British and Irish Ombudsman Association) as our Independent Assessor in the autumn of 2001. His role is to consider complaints about the way that we handle cases.

Under his terms of reference, the Independent Assessor can consider complaints about the investigative process and the behaviour of staff - but disagreements with the merits of decisions are expressly excluded from his jurisdiction. The Independent Assessor is authorised to make findings and recommendations for redress where he believes it is justified.

Between the date of his appointment and 31 March 2002, the Independent Assessor received 50 complaints. As at 31 March 2002, he had upheld 12 of these complaints in whole or in part; rejected 14; and found 8 to be outside his jurisdiction. Sixteen complaints were awaiting a decision as at 31 March 2002. The ombudsmen accepted the Independent Assessor’s recommendations in all cases.

In his report to the board on his findings, the Independent Assessor said that delay or insufficient explanations were the two most frequent reasons for his upholding complaints in whole or part. In five cases, he recommended compensation ranging from £50 to £600.

The Independent Assessor has reported to the board that it was not possible for him to draw any general conclusions from the complaints he decided. He pointed out that the number of complaints was minute in comparison to the total number of cases that the Financial Ombudsman Service had dealt with. However, he gave an unqualified assurance that the cases he investigated contained no evidence of any bias on the part of the ombudsman service, either in favour of consumers or against them.

Regrettably, Sir Edward Osmotherly retired as Independent Assessor in April 2002 for health reasons. The board and I would like to thank him for his work in casting an independent eye over our complaints-handling procedures and thereby helping us to raise our standards. Michael Barnes CBE (a former board member of the Financial Ombudsman Service and former Legal Services Ombudsman) is carrying out the work of Independent Assessor on an interim basis until we have appointed a replacement.

cases with wider implications

Decisions we made in two areas during the year attracted considerable attention. The decisions - relating to TESSA savings accounts and to what became known as ‘dual’ variable rate mortgages - coincided with the introduction of the new ombudsman service. Some commentators inferred from this that we were on the look-out for high profile cases. In fact, these decisions were made under transitional rules relating back to the previous ombudsman schemes.

There is more information about these complaints - and our decisions - in the chapter, overview of complaints trends.

Our decisions in these cases aroused some concern from trade associations representing banks, building societies and mortgage lenders. Although some building societies claimed to be concerned about our processes rather than our decisions, the fact that these concerns had not been expressed when we consulted on our processes suggested different worries.

Concern was expressed about the fact that, by comparison with the FSA, we are not formally required to consult. Some claimed that our structure does not make us as accountable as the FSA, and that while FSA’s disciplinary process provides the opportunity to appeal, there is no such possibility with an ombudsman decision. Some banks and building societies also suggested that in publishing our approach to common complaints we had become a quasi-regulator.

It is, of course, inevitable that our decisions can have an impact - in the sense that firms may feel the need to adjust their practice, and consumers may feel encouraged either to complain or to act more cautiously in the future. But this does not make us a regulator any more than the courts are regulators. We are quasi-judicial rather than quasi-regulatory. Adjudicatory bodies such as ourselves cannot easily be required to consult about decisions.

Accountability is a slippery concept - sometimes people use the word to mean that the body from which accountability is demanded should be capable of being influenced and controlled. But the most important feature of the ombudsman is independence - that is, freedom from control or l influence by those who are, or may be, parties to disputes. We should of course be accountable for the money we spend. And we should record and be open about what we do, so that people can examine and criticise us.

Adding an appeal stage would slow up the process of resolving disputes. And many would see the addition of an appeal as undermining the nature of an ombudsman scheme as a speedy and informal complaints mechanism.

The decisions we made in relation to complaints involving ‘dual’ variable rate mortgages attracted both considerable attention in the media and a formal demand, collectively from the mortgage lenders, for the FSA to intervene.

Individual lenders reacted in different ways to our decisions. That is their right. We make decisions in individual cases. How, or whether, our decisions are applied more widely is not a matter for us. One lender decided to apply to all similarly-placed customers the principles it saw in the individual case. Others decided not to do so. Inevitably these different approaches attracted media comment.

The FSA’s complaints-handling rules require firms to take reasonable steps to ensure that they handle complaints fairly, consistently and promptly; and to identify and remedy any recurring or systemic problems. This may mean applying a number of value judgements. Firms may be faced with difficult business decisions as to how they should approach the task of complying with this rule and dealing fairly with different classes of customers.

The media attention that our decisions attracted in relation to ‘dual’ variable rate mortgages also highlighted another feature of the way our service works. We are a private dispute resolution service and we do not comment on individual cases or - without specific consent - identify the parties involved. But either party is free to publicise their dealings with us if they choose to do so.

An ombudsman should not expect or court popularity with those who are the subject of decisions. But the industry is entitled to understand clearly the parameters within which our service operates. As soon as it became evident that there was substantial disquiet in banking and building society circles, I convened a series of meetings with trade bodies and representatives of the FSA. I see a continuing dialogue with all parties as important to continuing confidence in our service.

communication and information-sharing

During the year we continued our work to promote a better public understanding of the ombudsman service - and a better understanding of how complaints arise and might be avoided. We believe there are lessons to be learned by both the financial services industry and consumers, and we carry out a range of activities to share our experience and knowledge with the outside world. These activities range from organising roadshows and workshops to publishing ombudsman news and running our technical advice desk.

There are more details about our external liaison and communications activities in the chapter key facts and figures.

rule changes

During the year we consulted on some proposed changes to our voluntary jurisdiction. These changes subsequently came into effect in March 2002. They allow certain banks and general insurance companies that are based outside the UK, but within the European Economic Area,
to join the ombudsman’s voluntary jurisdiction - giving their UK-based customers access to the Financial Ombudsman Service. The firms involved include a number of general insurance subsidiaries of major UK firms which sell travel and loan protection policies into the UK from bases in Ireland. Several of these companies were formerly covered by the Insurance Ombudsman Bureau, and this jurisdictional change allowed coverage to continue under the new single Financial Ombudsman Service.

extending our jurisdiction

In December 2001, HM Treasury announced that the FSA would be given responsibility in 2004 for regulating mortgage sales and administration, as well as for general insurance sales and claims. This will have the effect of bringing these areas within our compulsory jurisdiction. We welcome this decision. It allows us to take a significant step towards covering everything generally regarded as ‘financial’.

But in advance of 2004, we see value for consumers and firms in our opening our voluntary jurisdiction, both in these areas and in some others - notably the personal loan/credit card field (known as consumer credit). In the consultation we launched in May 2002 we hope to canvass a wide spectrum of opinion from firms, trade associations, consumer organisations and self-regulatory bodies. The responses will allow us to plan for a service that will meet the needs of a wider set of firms and consumers in the coming years.

Walter Merricks
13 June 2002

useful links