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annual review 2006/07

1 April 2006 to 31 March 2007

the independent assessor's annual report

annual report by Michael Barnes CBE to the board of the Financial Ombudsman Service

The independent assessor's role is to carry out a final review of the service provided by the Financial Ombudsman Service, in cases where a user of our service has already referred the matter to our service review team for investigation but remains dissatisfied. Under his terms of reference, the independent assessor can consider complaints about our procedures and the behaviour of our staff. Disagreements about the merits of decisions are excluded from his jurisdiction. The independent assessor is authorised to make findings and recommendations for redress in cases where he believes it is justified.

During the year ended 31 March 2007, a total of 326 cases were referred to me - a figure broadly similar to previous years (322 cases in 2005/06 and 319 the year before that). I received fewer referrals and enquiries than in previous years in relation to matters that had not yet been raised with the service review team at the Financial Ombudsman Service - something that is required before I can become formally involved in a case. The reduction in cases referred to me too early in the process probably reflects growing familiarity with the role of the independent assessor.

Of the 120 cases referred to me that did not require investigation, 57 were referred to me too early in the process; 38 were only general enquiries; 24 were outside my jurisdiction because they were "out of time" or unrelated to the ombudsman service; and one case was not pursued further by the complainant.

The number of cases referred to me that required a full investigation and review of the file increased to 206 - from 186 in 2005/06 and 164 in 2004/05. I upheld the complaint (either wholly or in part) in 88 of these 206 cases - compared with 76 cases in the previous year. This involved my making recommendations for financial compensation in 82 cases.

The amounts of compensation that I recommended ranged from £30 to £1,400 - with roughly half falling between £250 and £500, and most of the remainder being for £200 or less. In about a quarter of the complaints that I upheld, the service review team at the ombudsman service had already offered apologies and/or some compensation - but not enough, in my view, to provide sufficient redress.

In my annual report last year, I drew attention to the problems that can arise for consumers, when ombudsmen make "formulaic" awards which require firms themselves to calculate the actual amount of compensation due to the consumer. I very much welcome the board's response to my concerns. I understand that steps are being taken in this area. In particular, the ombudsmen are now making greater effort to specify the exact amount of compensation awarded - wherever they have the specific detailed information needed for this calculation.

However, I am still receiving a number of complaints about redress calculations carried out following final decisions by ombudsmen. One pension case graphically illustrated the wide variations that can exist between the level of compensation that the parties understand the ombudsman to have awarded - and the actual amount payable when the final calculations have been made. In the case in question, the consumer's financial advisers considered that the redress due was in the region of £130,000. The firm must have taken the same view, because shortly after the ombudsman issued the final decision, it offered the consumer £100,000 (the maximum amount binding on the firm). The consumer did not accept the firm's offer and instead held out for the higher amount estimated by her advisers. When the final (admittedly complicated) calculations were complete, the actual amount of compensation due was found to be only £25,700.

Another area that can be confusing for consumers, when they refer a complaint to the ombudsman service, is the position in relation to any previous offer that the firm may have made earlier. In one particular case, I did not find the ombudsman's final decision satisfactory, from the consumer's point of view, when the ombudsman stated: "I do not uphold the complaint. Should the firm be prepared to stand by its original offer, Mr M should contact the firm if he wishes to accept it."

If consumers are to make properly informed decisions as to whether to accept or reject an ombudsman's decision, it seems to me to be desirable that they should be informed of the current status of any offer made by the firm - and what the implications are for that offer, if the ombudsman does not uphold the complaint. Possibly this is something that adjudicators should clarify at the assessment stage - particularly when they are dealing with mortgage endowment cases, where re-calculating the compensation at a later date can make a big difference if the surrender value of the endowment policy has changed.

As in previous years, I received a small number of complaints from firms - mainly from independent financial advisers (IFAs). I upheld the complaint in six cases. In four of these, errors in administration within the ombudsman service resulted in undue delay - leading to the firm having to pay the consumer additional interest on the amount of compensation awarded by the ombudsman. In such cases I have taken the view that it is not practicable to estimate how long any particular investigation should have taken, with a view to calculating the extra interest due to delay. Instead, I prefer to recommend that the ombudsman service should pay compensation for the inconvenience caused, taking into account the fact that the firm has had to pay interest as a result.

Delay continues to be the prime source of complaint about the way the ombudsman service has dealt with cases - followed by other instances of poor service, such as failure to acknowledge correspondence, to respond to phone calls, or to keep consumers updated on progress. Unfair treatment is also frequently complained about - but this often turns out to be dissatisfaction with a specific ombudsman's decision, which my terms of reference exclude me from questioning, unless there appears to be some procedural irregularity in the way the decision has been arrived at.

Often consumers will mention delay, poor service and unfair treatment as the reasons for their dissatisfaction with the way their complaint has been dealt with. Changes of adjudicator - as a result of staff leaving or going on maternity leave, or the case being transferred to another team - can be a contributory factor in causing delay. I have seen several extreme examples of three, four, and in one case five, adjudicators having a hand in cases where the investigations have taken three years or more to bring to a final conclusion.

Although half of all disputes referred to the ombudsman service during the year involved mortgage endowments, the product areas represented in the cases that I see are fairly evenly spread - with investments, pensions and insurances of one kind or another topping the list, followed by mortgage endowments and banking matters.

However, it is important to note that the cases referred to me are only a tiny fraction - approximately 0.2% - of the overall caseload of the ombudsman service. The examples that I have quoted in this report should therefore be regarded as being in the nature of anecdotal evidence, rather than having any wider validity. I have no reason to doubt that the vast majority of people with disputes handled by the ombudsman service receive a satisfactory level of service.

Michael Barnes CBE
April 2007

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.