1 April 2006 to 31 March 2007
As well as settling individual disputes between businesses providing financial services and their customers, our work includes a range of other activities. This includes working with external stakeholders who have an interest in our service - and working internally on the management of operational, policy and legal issues.
In this section we highlight some of the projects and activities we have been involved in over the year. Our corporate plan, which we publish in January of each year (and which is available in the "publications" section of our website), also gives details about this work.
We carried out a substantial amount of work during the year in preparation for the new consumer-credit complaints-handling arrangements, which came into force in April 2007 under the Consumer Credit Act 2006.
This involved both policy-related and operational planning to be able to extend our remit to cover some 80,000 businesses with a standard consumer-credit licence, who came under the ombudsman service for the first time from April 2007. Work on this significant project included:
We recognised the breadth and diversity of the consumer-credit sector as a particular challenge in carrying out this work. The sector includes banks and building societies who provide the loans and mortgages that make up 70% of consumer credit by value - and who have long been covered by the ombudsman.
On the other hand, we also need to be responsive to the needs of the tens of thousands of consumer-credit licensees - from furniture stores and karate clubs to piano-hire firms and jewellers - whose main business is not the provision of financial services. Their consumer credit activities - now covered by the ombudsman - are merely an add-on to their mainstream line-of-business.
We are, of course, already well used to dealing with businesses in this position. Since January 2005, we have handled insurance disputes relating to a wide range of smaller businesses whose primary commercial focus lies outside financial services - in areas as diverse as veterinary services (involving pet cover) and marquee-hire (involving wedding insurance).
We also prepared for the extension of our remit to cover additional activities which became regulated by the Financial Services Authority (FSA) from April 2007:
We have continued to work closely with the FSA on topics which affect both our dispute-resolution role and the FSA's regulatory role. During the year this included operating and raising the profile of the widely-welcomed "wider implications" process and updating the memorandum of understanding between the two organisations.
We assisted the FSA in exploring the implications of its move towards more principles-based and outcome-focused regulation. This is a development of its risk-based approach to regulation. The availability of the ombudsman service to resolve individual cases is one of the key elements that enable the FSA to focus on the broader picture.
More principles-based and outcome-focused regulation will not change the criteria on which the ombudsman service decides complaints. Our decisions generally turn on disputes of fact (where the customer and the business cannot agree what happened) or on legal principles (as elaborated by courts) that apply to all businesses - rather than on the detail of FSA rules.
However, in the process of simplifying its rulebook, the FSA is taking into account lessons learned from the ombudsman's experience. Allied with this, the FSA and the ombudsman service have been working on simplifying the rules which set out the scope of the ombudsman service and the procedures which it follows. The aim is to explain these more clearly and succinctly. A consultation paper will follow later in 2007.
In May 2006, we published a discussion paper jointly with the FSA on how the cost of funding our jurisdiction over FSA-regulated financial firms should be shared amongst those firms in future. The paper raised a range of possible options for the future balance between annual levies and case fees.
The responses indicated broad support for increasing the importance of the case fee - as opposed to the levy - in financing the ombudsman service. At the same time, there was support for increasing the number of cases per year (currently two) which can be considered by the ombudsman service before a firm starts paying case fees.
In April 2007 the FSA and the ombudsman announced that they would see what scope exists for moving incrementally in this direction - when agreeing, towards the end of 2007, our budget for the financial year 2008/09. Immediate changes were not proposed, because uncertainties about the number of future cases made it difficult to model the effect on either the financial stability of the ombudsman service or the size of the levy and case fees.
During the year there has been an increasing focus on the role that ombudsman schemes can play in providing accessible redress to consumers. This ranges from the establishment of new arrangements for disputes about legal services - to enhanced arrangements for complaints about estate agencies and utility companies. The government departments and others involved in developing these schemes have spent considerable time with us, seeking to learn from our processes and experience.
One issue is where to strike the balance between separate schemes - that can focus on the special circumstances of particular sectors - and broader schemes that might be more accessible for consumers and provide economies of scale. These are public policy issues which government is considering. In that context, the Department of Work and Pensions launched a review of pensions institutions, which is considering whether there should be closer links between the Financial Ombudsman Service and the Pensions Ombudsman.
We have continued to cooperate with our public-sector and private-sector colleagues in the British and Irish Ombudsman Association (BIOA). And through our membership of the steering committee of FIN-NET, the European network of financial dispute-resolution bodies, we have continued to encourage the development elsewhere in Europe of comprehensive financial ombudsman arrangements such as exist in the United Kingdom - so that consumers have ready access to redress when they buy financial services cross-border.
82% of businesses covered by the ombudsman had no complaints referred to us during the year - and 11.5% had fewer than three complaints. These are mostly smaller businesses - whose direct contact with us is therefore very limited.
To help us focus on - and accommodate - the different needs and concerns of smaller firms, we set up a high-level internal taskforce last year. This taskforce has executive responsibility for prioritising and co-ordinating policies and activities relating to these businesses. Work taken forward by the taskforce over the year has included the following projects and initiatives:
Our work gives us a unique insight into how and why disputes arise - and how they might be avoided in the first place. There are valuable lessons from this for business and for consumers - and we carry out a wide range of activities to share our experience and knowledge with the outside world. Over the year these external liaison and outreach activities have included:
This annual review is published in accordance with paragraph 7 of schedule 17 of the Financial Services and Markets Act 2000.
