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Ombushambles III: An open letter to Harriett Baldwin

19 May 2015

Today the Financial Ombudsman Service published its annual review for 2014/15, and no doubt a copy has landed on your desk as Economic Secretary to the Treasury with responsibility for financial regulation. It paints a somewhat different picture from the practical experience I and I suspect a great many consumers have experienced.

(a) Delays

Under the legislation that establishes the Financial Ombudsman Service (the Financial Services and Markets Act 2000 as amended), together with the rules found in the FCA Handbook, the Financial Ombudsman “will attempt to resolve complaints at the earliest possible stage…” (DISP 3.5, amplifying s.225(1) “resolved quickly” etc.).

As you are no doubt aware (and as I can testify from my own experience over the last four years), delays before a case is brought to an ombudsman for determination now routinely exceed a year. This is not reflected in the figures published today, since they analyse delays by including the cases referred to ombudsmen (only 10% of the total complaints) among the overall numbers: but since even 10% of the total cases take over 12 months in the published figures, my claim is implicit in the figures. It is not contested by the FOS, who “accept that this is too long” (according to their most recent communication to me). Their plans to recruit more staff evidence the fact that they are aware that they are not at present able to comply.

The fact that consumers and businesses reach agreed settlements mediated by adjudicators in most cases (less perhaps because so many people are satisfied by the preliminary assessments than because they are deterred from going further by the delays) does not deal with the obligation to provide settlements under the “compulsory jurisdiction” (i.e. involving ombudsmen decisions) at the “earliest possible stage”. I note however that the number of cases referred to ombudsmen has grown from 10,730 in 2010 to 43,185 in 2015, a dramatic rate of increase.

You will also know that it is the Financial Conduct Authority’s statutory duty to ensure that the FOS complies with its obligations: “The Authority must take such steps as are necessary to ensure that the scheme operator is, at all times, capable of exercising those functions.” (Sch. 17, para 1(2)). When I complained to the Independent Assessor about delays in one of my cases, she told me that my delay was no worse than any other consumer’s (and so was fair), and as to the adequacy of the FOS’s resources, that “it’s the role of the FCA to assess whether the Ombudsman Service is discharging its wider functions, not mine.” The Chief Executive of the FCA has not replied to my communication about this.

Surely it is time to take action to ensure that the law is being complied with.

(b) Competence, independence and reviews

I have repeatedly found issues of competence in my dealings with staff at the FOS. It is not appropriate to raise these individual examples with you. But what is relevant is the mechanism for handling such complaints within the FOS and the so-called Independent Assessor. Where an adjudicator hasn’t understood the legal analysis (or in some cases simply hasn’t read the file properly), complaints almost always result in rubber stamping the initial error. The Independent Assessor will never rule on any matter that relates to a decision, arguing that this is not her role; while when cases are referred to an ombudsman, the bias to rubber stamping is considerable, and goes beyond mere collegiate ethos (the adjudicator whose view is being appealed drafts the response for the ombudsman). When I complained about this procedure to the Independent Assessor (and in particular the promise on the FOS website that the ombudsman’s review was “independent”), I was told that

I know from experience of the many cases I examine that Ombudsman do reach different outcomes in many cases despite the adjudicators having provided a draft. I think that is probably the best measure that it really is an independent review. The Ombudsman’s review is not just a rubber stamping but an independent review.

Yet the figure published today (as she says, the best measure) prove the opposite: “in 92% of final decisions this year, the ombudsman didn’t recommend anything different to the adjudicator. Where they did, it was usually because new facts or evidence came to light only after the adjudicator had given their answer.”

I also raised a technical question about whether the current arrangements where adjudicators make assessments without the supervision of an ombudsman were lawful; the Independent Assessor told me that “I cannot comment upon whether the Ombudsman Service has acted ultra vires as that is a point of law that would have to be determined by a judicial review in administrative law.”

* * *

What is clearly required if consumers are to have an effective service is a fundamental revision of the review procedure. A genuinely independent assessor should be appointed, with a brief that considers all aspects of the FOS performance, including the power to investigate errors made by staff through incompetence even if they relate to the decision. At present the Independent Adjudicator seems willing only to comment on where the FOS introduce particular, avoidable delays that are even more egregious than their standard performance, and has no interest in criticising the levels of underperformance that have become established as the norm.

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