Last month, Lord Hunt published the results of his six-month review of the Financial Ombudsman Service.
The resulting report, titled "Opening Up, Reaching Out and Aiming High" contains many recommendations some of which are likely to be welcomed by those dealing with complaints before the FOS but some of which may disappoint and give cause for concern.
To read a summary of Lord Hunt's report and comment on the potential impact the recommendations may have on claims against regulated firms please see below.
To view the article in full, please see below:
Full Article
Last month, Lord Hunt published the results of his six-month review of the Financial Ombudsman Service. The resulting report, titled "Opening Up, Reaching Out and Aiming High" contains many recommendations some of which are likely to be welcomed by those dealing with complaints before the FOS but some of which may disappoint and give cause for concern.
Lord Hunt's Review
Lord Hunt's review of the FOS was specifically not a review of the quality of decision-making by the FOS. It was a review of policy and practice in relation to accessibility and transparency.
Lord Hunt identified two principles that are at the heart of the numerous findings and recommendations contained in his report:
- the FOS must become more personalised; a principle that
is the basis of many recommendations made to help improve
accessibility for lower income and less educated consumers to
the FOS' services; and
- the FOS must become more predictable by investing more in
policy-making and communication.
Accessibility
In summary, Lord Hunt wants to increase accessibility to the Ombudsman service. While unwelcome to firms as this may add to the number of complaints, this may only be an issue for firms with large exposure to credit products, and may in fact generate a welcome diminution in the role of claims management companies.
Lord Hunt has concluded that currently the FOS is "a middle class service for middle class people" and is intimidating to the less educated. With this in mind, it is difficult to argue with the principle that the FOS should make itself more accessible to those customers who are less well off or who are not well educated in financial matters from which Lord Hunt concluded:
- The FOS should change its name getting rid of the word
"Ombudsman" and possibly replace it with the word
"complaints".
- Case advisers should be assigned to the most vulnerable
complainants to assist them in dealing with the FOS'
process.
- The FOS should actively monitor cases where complaints it
receives are forwarded on to firms to be dealt with, check
whether complainants have received a suitable reply from the
firm within the 8 week period and remind complainants of
their right to revert their complaint back to the FOS.
- The 8-week response deadline for responding to complaints
should be reduced for consumer credit cases.
Nevertheless, of some concern for those subject to the FOS jurisdiction is Lord Hunt's recommendation that the FOS be more aggressive in advertising its services. He concluded the FOS should advertise using local media and daytime TV. This would mimic to some extent the advertising of claims management companies a deliberate ploy to ensure consumers realise that the FOS is a free service that does not necessarily require the cost of employing a claims intermediary.
Lord Hunt recognised that it was important for the FOS to maintain its impartiality by not being seen to encourage consumers to complain. He suggests advertising should be "defensive" not "aggressive" and should take care to set appropriate expectations. Nevertheless, it is hard to see how such advertising can avoid the appearance of encouraging complaints which it is undoubtedly likely to do; and managing complainants' expectations is hard enough to do in a direct, personalised context, never mind in a generic advert.
Processes
Lord Hunt does not make any proposals that would substantially change FOS' current procedure.
As part of the recommendations for improving accessibility, as well in relation to other issues, the report makes numerous recommendations about the FOS's processes and jurisdiction that will alternatively please and frustrate claims handlers, including:
- Lord Hunt rejected calls for the introduction of a
"longstop" time-bar for the FOS'
jurisdiction. However, he did recommend the FOS should set
out its general approach for assessing evidence in cases
about advice more than 6 years old.
- The FOS should develop common forms of complaint
templates to enable relevant information to be collected from
the outset. Whilst this seems innocuous in principle, the
content and tone of the form will be critical and firms will
be keen that they avoid simply "leading"
complainants to say whatever will improve their chances of
success.
- The FOS should not align itself to court processes. In
particular, calls for more frequent oral hearings were
rejected.
- The FOS should retain the "fair and reasonable"
test for deciding whether or not to award redress to
complainants. Lord Hunt believes the test provides the FOS
"wider freedom than almost any other public body"
(a positive attribute, in his view) and rejected calls for a
more legal approach to decision making.
- FOS decisions should always state an amount for redress
awarded rather than state a formula. This recommendation is
likely to be welcomed by consumers and firms alike. It should
help to achieve greater clarity for complainants when
deciding whether or not to accept an Ombudsman's
decision and should avoid lengthy post-decision disputes
about quantum.
- The FOS should disclose any documents it has relied on in
reaching its decision. Another recommendation that is likely
to be welcomed as it should aid transparency and fairness in
the decision making process.
- Of more concern to regulated firms, perhaps, is the
conclusion that there is no need for an external appeals
mechanism to the FOS jurisdiction. Lord Hunt took the view
that the existing "internal" appeals process and
the availability of judicial review provided sufficient
safeguards. The protection provided by the extremely high
threshold (and expensive) process of judicial review can be
debated. However, the "internal" appeals process
can only provide genuine safeguards from poor decision making
if adjudicators' decisions are not reviewed by
Ombudsmen who have already been involved in the case; and if
final decisions involve a complete review of a complaint by a
different individual ombudsman to that involved in the
provisional decision.
- Despite his views on appeals, Lord Hunt concluded that
the FOS should continue to have discretion to reopen a
decision "in the very rare cases" where relevant
information emerges after a decision has been made. This
seems to contradict one of the reasons for rejecting a formal
appeals process: namely that it will prevent finality and
increase uncertainty.
- Whilst the report does not seek to comment directly on
the FOS award limit of £100,000, it does conclude that
a review is needed urgently. What's more, the report
sets out various criteria for any review of the award limit.
One issue not included in these criteria is the fundamental
policy consideration of setting a limit high enough to
protect the majority of consumers (and, in particular, low
income consumers) and yet low enough fairly to reflect the
compromises necessarily involved in the quick and informal
FOS jurisdiction.
- The report rejects the vociferous calls for fees to be
charged to complainants or for fees to be charged based on
the outcome of cases. However, it suggests that complaints
that fall outside of the Ombudsman's jurisdiction
should not attract a case fee.
- Lord Hunt also proposes that higher case fees be charged
to firms in cases where they fail to meet DISP time limits
for providing an initial response.
- In keeping with the overall impression that Lord Hunt is
no fan of claims management companies, he recommends that
they should be charged a case fee by the FOS when they put
forward vexatious complaints (and should be regulated against
passing this fee on to the complainant). He also advocates
the prospect of claims management companies being made
subject to the FOS levy.
Communication
One of Lord Hunt's more interesting and substantial recommendations results from his conclusion that the FOS is slow to share its thinking and processes and should strive to achieve a greater consistency of approach. He recommends that a new publication should be maintained, which he calls: "FOSBOOK". The objectives of the FOSBOOK should be to ensure everyone knows what factors the FOS will weigh in specific cases and provide a real time means of communicating significant case decisions.
The FOSBOOK should:
- be a means of recording and promulgating details of the
FOS' developing practice and decisions;
- not strictly involve setting precedent but decisions
should refer to FOSBOOK and explain any variation from
it;
- include statements of general approach for categories of
cases;
- regularly publish anonymised cases regarded as defining
normal practice, which should result in significantly more
decisions being published and published in full;
- contain model redress calculations.
In addition to the FOSBOOK, the report recommends:
- The FOS should work with the FSA to ensure coordinated
communication on the development of the Treating Customers
Fairly strategy.
- The FOS should work towards publishing claims performance
data and in the meantime should introduce an awards scheme
for best performers / wooden spoon for worst.
- The FOS should take an active role in the development of
the "Stakes in the Ground" concept put forward by
the Association of Financial Advisers in which acceptable
industry practice at any given point in time is
documented.
Relationship with FSA
This is a further key area addressed by Lord Hunt, but one where he does not make firm recommendations. He says paradoxically that FOS must be on guard against attempting to usurp or supplant regulators, yet notes that FOS is not open with its thinking or processes for fear of being perceived as a quasi-regulator.
This is the nub of the issue. Lord Hunt views FOS as the resolver of individual disputes, but fails to take into account that FOS decisions resonate beyond specific complaints, with FSA rules requiring firms to take FOS decisions into account when identifying and determining complaints. This means that a single FOS decision can result in a firm having to compensate a far wider group of customers, whether or not they have complained about the issue, on the basis of an Ombudsman's interpretation of an individual complaint following an informal procedure and on a fair and reasonable basis.
While the Hunt Report does touch on this so-called "Wider Implications" procedure, FSA's stance on firms having to adopt FOS decisions across an entire book of business lay outside his remit. This is, therefore, an area where firms may wish to use the debate started by the Report as an opportunity to challenge FSA, arguing how this is a clear example of FOS and FSA interacting to give the Ombudsman the undesired and commercially damaging "quasi-regulator" status.
Conclusion
Overall the Hunt Review has come up with some interesting albeit broadly conservative recommendations more often than not favouring the status quo. The FOSBOOK is, perhaps, the only truly innovative recommendation contained in the report. If implemented, it has the potential to benefit all users of the FOS and could help to render the process of dealing with claims before the FOS more transparent and predictable. Whether the FOS has the will, time and money necessary to make such a significant project work is a different matter.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 07/05/2008.