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annual review 2006/07

1 April 2006 to 31 March 2007

how we dealt with the complaints

We resolved a total of 111,673 cases in the financial year 2006/07 - including 63,877 mortgage endowment complaints.

number of complaints resolved

year ended
31 March
complaints resolved
2002 39,194
2003 56,459
2004 76,704
2005 90,908
2006 119,432
2007 111,673

We resolved 10% fewer mortgage endowment cases than in the previous year - primarily as a result of dealing with a larger proportion of more complex cases relating to smaller businesses, where the benefits of scale we have developed when dealing with larger financial services groups are more limited.

This decrease in the number of mortgage endowment complaints we settled led to a small reduction of 6.5% in the total number of cases we resolved during the year. However, this overall figure is still the second highest recorded - and is four times the number of cases we resolved in the financial year 2000/01, when our predecessor ombudsman schemes merged to form the Financial Ombudsman Service.

During the year our adjudicators were able to settle most disputes informally - through mediation and recommended settlements. This reflects our aim to take as flexible and pragmatic an approach as possible to resolving complaints - using the dispute-resolution tools most appropriate to the individual circumstances of each case.

For example, mediation usually involves our negotiating a constructive way forward - satisfactory to both sides - without seeking to apportion any blame for what may have gone wrong in the past between the business and its customer.

Where informal intervention does not help settle a dispute, adjudicators can issue an adjudication on a case - a document setting out our recommendations about whether the complaint should be upheld. In most cases, both sides accept the recommendations. But either side can ask instead for a review and final decision by an ombudsman. This happened in 6% of cases during the year. A decision by the ombudsman is final - it is the last stage of our dispute-resolution process.

Where disputes are outside our jurisdiction, this is usually because consumers have left it too late to complain. During the year around one in five of the mortgage endowment disputes we handled turned on whether the business involved had correctly applied the endowment "time bar" rules (as set out in the FSA's complaints-handling rules - the "DISP" section of the FSA's Handbook).

Other than in exceptional circumstances, we are not able to consider the merits of a complaint where a business has properly applied a "time bar" - and their customer's right to complain has therefore expired. Disputes about "time bars" form a significant part of the workload of the ombudsmen who are called on to make final decisions on our jurisdiction in cases such as these.

outcome of cases resolved by adjudicators (resolved by mediation, recommended settlements and adjudications)

mortgage endowment cases
(62,075 cases resolved)

  • In 55% of cases, the adjudicator found that the business had treated the customer's complaint fairly.
  • In 1% of cases, the business had made an offer to the customer but the adjudicator negotiated an improved settlement.
  • In 22% of cases, the adjudicator found that the business had not treated the customer's complaint fairly.
  • In 2% of cases, the customer withdrew their complaint.
  • In 20% of cases, the complaint was found to be outside our jurisdiction (for example, because it was made out of time).

cases other than mortgage endowment
(42,756 cases resolved)

  • In 55% of cases, the adjudicator found that the business had treated the customer's complaint fairly.
  • In 6% of cases, the adjudicator found that the business had generally treated the customer's complaint fairly - but the business still agreed a goodwill payment.
  • In 11% of cases, the business had made an offer to the customer but the adjudicator negotiated an improved settlement.
  • In 16% of cases, the adjudicator found that the business had not treated the customer's complaint fairly.
  • In 8% of cases, the customer withdrew their complaint
  • In 4% of cases, the complaint was found to be outside our jurisdiction (for example, because it was made out of time).

outcome of cases resolved by ombudsmen (resolved by final decisions)

mortgage endowment cases
(1,802 cases resolved)

  • In 42% of cases, the ombudsman found that the business had treated the customer's complaint fairly.
  • In 2% of cases, the business had made an offer to the customer but the ombudsman negotiated an improved settlement.
  • In 29% of cases, the ombudsman found that the business had not treated the customer's complaint fairly.
  • In 27% of cases, the complaint was found to be outside our jurisdiction (for example, because it was made out of time).

cases other than mortgage endowments
(5,040 cases resolved)

  • In 53% of cases, the ombudsman found that the business had treated the customer's complaint fairly.
  • In 2% of cases, the ombudsman found that the business had generally treated the customer's complaint fairly - but the business still agreed a goodwill payment.
  • In 6% of cases, the business had made an offer to the customer but the ombudsman negotiated an improved settlement.
  • In 34% of cases, the ombudsman found that the business had not treated the customer's complaint fairly.
  • In 5% of cases, the complaint was found to be outside our jurisdiction (for example, because it was made out of time).

different outcomes in different cases

Where we uphold a complaint in favour of a consumer - either wholly or partly - there are a number of ways in which we can put matters right, depending on the individual circumstances of the case. These include:

  • Telling the business to pay redress - to put the consumer in the position they would now be in, if the business hadn't got it wrong in the first place.
  • Telling the business to compensate the consumer for particular distress and inconvenience - generally a modest amount between £150 and £500, where we believe the individual circumstances justify it.
  • Directing the business to take action, to put right what's gone wrong. This can range from correcting credit references to paying a previously rejected insurance claim.
  • Telling the business to apologise to the customer.

Where we do not uphold a complaint in favour of a consumer, we aim to give a clear explanation of why we believe the business has treated its customer fairly. Sometimes, if the business itself had made a better job of doing this, it could have prevented the complaint from arising in the first place. Sometimes our explanation simply reinforces - from an impartial standpoint - what the business has already set out clearly for their customer.

We know that any decision of ours will come as a disappointment to the side that doesn't hear from us what it most wants to hear. However, whatever the outcome of an individual dispute, we hope we will have "added value" by giving our view on the case fairly, authoritatively and impartially.

We have focused on this as a key message during the year - in the light of research suggesting that consumers frequently thought our sole purpose was to resolve complaints in their favour, as the "consumer champion". Advertising that we ran on a trial basis - as part of an initiative to improve our accessibility to some ethnic groups who currently use our service less than the majority of consumers - was designed to present a more down-to-earth and realistic picture of what our work in settling disputes achieves.

timeliness

The chart below shows the time it takes to settle disputes that are referred to the ombudsman service. For complaints about banking, insurance and investments other than mortgage endowments, we resolved over half of the disputes within three months.

Our ability to handle mortgage endowment complaints as quickly as we would have liked has been affected during the year by the increased proportion of these cases now involving smaller businesses. In these cases, we are no longer able to benefit from the efficiencies and economies of scale that we developed when dealing with significant volumes of cases about the largest financial services groups. Mortgage endowment complaints take between six and nine months to settle, on average.

Cases involving hard-fought arguments and entrenched attitudes are also becoming more common, as increasingly some businesses take a legalistic approach to dispute resolution, and consumers become more demanding and less willing to concede. This has a direct impact both on the time it takes us to resolve disputes and on our unit cost and productivity.

time taken to resolve cases

year ended 31 March resolved within 3 months resolved within 6 months resolved within 9 months resolved within 12 months
2007 34% 61% 76% 85%
2007
(excluding mortgage endowment complaints)
51% 81% 89% 92%
2006 32% 59% 75% 85%
2006
(excluding mortgage endowment complaints)
43% 74% 84% 89%
2005 32% 64% 80% 90%
2005
(excluding mortgage endowment complaints)
42% 72% 82% 88%

quality

Our "quality, information and knowledge" team co-ordinates our quality-improvement activities - working across all areas of the organisation to develop new approaches to quality and to provide process improvement and project-management expertise.

Underpinning our commitment to continuous improvement is our extensive programme of stakeholder research - by which we can better understand what our customers want, how they rate the service we provide, and where we could do things better. During the year we extended our range of research activities. This included:

  • Launching a new cycle of surveys to monitor the views of the businesses we cover.
  • Renewing our customer-satisfaction research, to take account of the changing issues and concerns of the people who use our service.
  • Carrying out regular awareness-studies to help with our work on accessibility - ensuring that everyone who needs to contact us knows how to find us and how to access our services.
  • Initiating a "voice of the customer" system, so that we can take account of customer comments, whoever they are from, whenever they arise, and whatever they are about.

Results and feedback from these various stakeholder-research activities are shown in more detail in the chapters who complained to us and who the complaints were about.

We continue to develop our knowledge-management systems - with over 85% of the financial products and services about which we receive complaints now covered by "KIT", our in-house knowledge management toolkit. During the year, KIT was further developed to take account of areas of activity that came under our new consumer-credit remit with effect from April 2007. This was part of a wide range of work in preparation for handling complaints about some 80,000 businesses with a consumer-credit licence, who had not previously been covered by the ombudsman service.

Recognising where we have made mistakes - and learning from any shortcomings - is a vital part of our commitment to quality. This is why - just like the businesses whose complaints we handle - we have our own formal complaints procedure for people who are unhappy with the service we have provided. These complaints are handled by a specialist group of complaints handlers, working as part of our "quality, information and knowledge" team. Where we cannot resolve a complaint about our service, it can be referred to the independent assessor.

[the independent assessor's annual report »]

Our quality system feeds back into the organisation everything we have learnt from analysing stakeholder input, as well as data from complaints and our quality audit - against a common root-cause analysis-framework. This includes providing feedback to individuals and teams - so that changes can take place "locally" within the organisation - and to senior management for more strategic improvements.

our budget and productivity

The Financial Ombudsman Service is funded by an annual levy paid by the businesses we cover - and by case fees that we charge each business for the third (and any subsequent) dispute involving them that we settle during the year. We do not charge businesses a case fee for the first two disputes each year.

Our budget is calculated on the basis of workload forecasts that we consult on publicly each year in January and February - before the start of the new financial year.

Following consultation in January and February 2006, the boards of the FSA and the Financial Ombudsman Service agreed a budget for the ombudsman service - for the financial year 2006/07 - that assumed income of £59.3 million, expenditure of £59.3 million and a unit cost of £472.

The actual figures for the year showed that our income from case fees was £6.9 million below budget - reflecting the impact of dealing with a higher proportion of more complex and time-consuming disputes, many of which involved smaller businesses that did not pay case fees because they had fewer than three complaints during the year. (As explained above, we charge businesses only for the third and any subsequent dispute each year.) Similarly, case fees did not apply in a significant number of the mortgage endowment disputes where we decided the complaint was "time barred" under the FSA's rules - and was therefore outside our remit.

our income and expenditure (summary) actual
year ended 31 March 2007
£m
budget
year ended 31 March 2007
£m
actual
year ended 31 March 2006
£m
actual
year ended 31 March 2005
£m
income        
annual levy 16.6 15.8 11.7 12.4
case fees 36.1 43.0 39.8 31.2
other income 0.4 0.5 0.5 0.4
total income 53.1 59.3 52.0 44.0
expenditure        
staff-related costs 42.5 46.0 40.5 34.7
other costs 9.7 9.7 8.9 8.2
financing charges 0.3 0.3 0.3 0.2
depreciation 2.5 3.3 2.9 2.7
total expenditure 55.0 59.3 52.6 45.8
surplus/(deficit) (1.9) 0.0 (0.6) (1.8)

The figures for the year ended 31 March 2007 are drawn from our unaudited management accounts. Both years shown exclude any adjustments for the accounting standard FRS17 on pension accounting. The directors' report and audited financial statements for 2006/07 are available separately [PDF version opens in new window].

Our total expenditure for the year of £55 million was £4.3 million below budget - mainly due to lower than expected staff costs. Staff costs fell as the number of our employees declined over the year - from the "headcount" figure of 1,015, as originally approved in our budget for the year, to 956 employees in post at the end of March 2007. This was in line with our general policy not to replace people who left. We explained this policy - as part of our plans for dealing with the reducing volume of new cases - in our corporate plan & budget published in January 2007.

The amount of bad debts during the year was £0.5 million - as a result of businesses covered by the ombudsman service going out of business, leaving case fees unpaid with no realistic chance of recovery. Around a half of this amount related to seven firms.

average numbers of cases resolved weekly by each adjudicator

year ended
31 March
average numbers resolved
2002 3.7
2003 4.9
2004 4.9
2005 4.4
2006 4.5
2007 4.1

our unit cost

year ended
31 March
our unit cost* (£)
2002 684
2003 518
2004 473
2005 496
2006 433
2007 484

*Our unit cost is calculated by dividing our total costs (before financing charges and any bad debt provision) by the number of cases we complete.

Our unit cost for the year was £484 - compared with an estimated figure in the budget of £472, and a figure of £433 in the previous year. This increase is due to a combination of our settling fewer "chargeable" cases - and the lower productivity of our adjudicators as the nature of complaints changes. Productivity - which we define as the average number of cases resolved weekly by each adjudicator - was 4.1. In previous years' annual reviews we have explained that the productivity levels achieved in earlier years reflected exceptional circumstances specific to that period - in particular, the significant economies of scale in connection with handling very large volumes of mortgage endowment cases.

image of annual review 2007

This annual review is published in accordance with paragraph 7 of schedule 17 of the Financial Services and Markets Act 2000.