In last year’s annual
review, we recorded a 38% increase in complaints. This year, the
volume of new cases reaching the ombudsman service has continued
to rise – resulting in an annual increase of a further 44%.
The number of complaints we resolved
this year also increased by 44% – following a 38% rise in the
previous year. This means that our workload has more than doubled
since we brought our predecessor ombudsman schemes together under
one roof three years ago – to form the new single ombudsman
service.
However, in the same three-year period,
our unit cost (the benchmark against which we judge our cost-effectiveness
in handling complaints) has fallen from £730 to £518
– as we continue to benefit from improved productivity through
flexible working and economies of scale.
Why are we seeing this rise in customer dissatisfaction with financial
firms? Is there any end to the increase in complaints to the ombudsman
service? The downturn in the financial markets is undoubtedly a
major factor behind the increase in investment-related complaints.
And the numbers of disputes involving mortgage lenders was inflated
during the year by the flood of complaints about dual variable-rate
mortgages. The increasing visibility of our service may also be
a reason why greater numbers of people are complaining to us. In
the past, consumers may not have known where or how to complain.
But these factors alone do not account for the rise in our workload
– and sadly I see few signs of a downturn in complaints. Despite
regulatory requirements, the way in which firms handle retail customer
complaints is still very variable. While some firms have coped well,
others have seriously under-estimated the numbers of customers complaining
about mortgage endowments – leading to major backlogs and delays.
Earlier this year, the Financial Services Authority (FSA) warned
in its Financial Risk Outlook 2003 that “firms do not appear
to have well-developed processes in place to explore outstanding
legal, regulatory and reputational risks in their retail portfolios
… Once a product has been sold, there is very little monitoring
of its continued efficacy or of any unintended or unexpected side
effects … All this means that firms are more likely to be the
subject of complaints and claims for redress.” For us –
and for consumers – this is a gloomy but realistic warning.
For firms who would like to see some reduction in the resources
we consume and in our impact on their businesses, the remedies lie
– not exclusively but very largely – in their own hands.
the numbers
Following public consultation in January and February 2002, the
FSA approved our budget of £28.2 million for the year ended
31 March 2003. This budget was based on the assumption that during
the year:
- new complaints would remain at a similar level to the previous
year – 37,500 cases;
- we would resolve 40,000 cases (up from 38,500);
- we would increase productivity by 25% in the three years from
2000/01 to 2002/03;
- we would introduce formal internal quality control benchmarks
to monitor improvements in the timeliness and quality of our work;
- our unit cost would be fixed for the second year running at
£688;
- we would increase the proportion of cases completed within
six months from 70% (the target set in the previous year) to 75%.
However, the number of new complaints to the ombudsman service
did not level off during the year, as had been budgeted for
at the start of the financial year. Instead, the volume of new complaints
rose – by 44%, to 62,170 cases.
I am pleased to report that through increased productivity we were
able to match this rise in new cases with a 44% increase in the
number of complaints we completed. We settled more complaints during
the year than ever before – 56,459 cases, rather than the 40,000
we had estimated. This resulted in a substantially lower unit cost
of £518.
There are more details of the types of new complaint we received
during the year, the outcome of the complaints we resolved and our
productivity over the year in key
facts and figures.
focus on quality
timeliness
In last year’s annual review we set ourselves new targets for
the time it takes us to resolve complaints. These new targets were
to complete 45% of cases within three months and 75% within six
months. During the year, we narrowly missed the three-month target
– resolving 44% (rather than 45%) of complaints within 90 days.
And we exceeded our six-month target – resolving 76% (rather
than 75%) of complaints within 180 days. Our board monitored all
cases that we were not able to resolve within twelve months.
In the light of our performance, we have again reviewed our timeliness
targets to see where we can improve. Our customer satisfaction surveys
– which I discuss below – show us how important the speedy
resolution of complaints is to our customers. So this year we have
increased from 75% to 80% the target for the number of cases we
aim to complete within six months. And we have introduced a further
target – to resolve 90% of cases within nine months. The board
will continue to monitor cases that we have not resolved within
twelve months.
Our new timeliness targets reflect our continuing focus on using
mediation and conciliation in dispute resolution. Our aim, wherever
possible, is to resolve complaints at the earliest stages –
through ‘guided conciliation’ – bringing the two
sides of a complaint together by taking a fresh look at the facts
and suggesting common ground. This can reduce the need for lengthy
and time-consuming investigations and formal ombudsman decisions.
The average time taken during the year to resolve a complaint by
mediation or conciliation was just under four months.
Resolving disputes can take much longer if either the consumer
or the firm requests a detailed formal investigation – especially
if the dispute involves large volumes of paperwork, complex facts
and entrenched attitudes. Our investigations clearly have to be
sufficiently rigorous to withstand close examination – including
scrutiny by the courts. Where a detailed investigation is required
to settle a dispute – involving a full ombudsman review and
decision – it takes us on average eight and a half months.
There is more information about the number of complaints we resolved
at each stage of our complaints-handling process in key
facts and figures.
quality assurance
Timeliness is an important measure of the quality of our service.
But equally important is the accuracy and consistency of our decision-making
in individual cases. During the year we introduced a series of internal
benchmarks to measure the quality of our service. At each stage
of our complaints-handling process, we carry out quality assurance
monitoring, measured against these benchmarks.
The benchmarks are:
- accuracy;
- timeliness;
- thoroughness of the investigation;
- reasonableness of the outcome; and
- whether customers were kept fully informed about our progress.
As part of our quality assurance work, we also carry out monthly
customer satisfaction surveys, asking people whose complaints we
have handled to give us feedback on our service. This feedback is
measured against the same customer service benchmarks that we use
internally for our quality assurance monitoring. We use the results
from both our internal and external monitoring to develop our procedures
and improve the service we provide. The results of this year’s
customer satisfaction surveys are summarised in key
facts and figures.
We are about to launch a similar satisfaction survey for firms
– to gauge the views of the firms we deal with about the way
we handle complaints and accommodate their particular needs and
concerns.
flexibility
During the year we also completed the final stage of the integration
of the old complaints-handling and ombudsman schemes – a process
which began in earnest in April 2000 (although planning began as
far back as 1997) when 320 staff from the former schemes moved in
together under one roof here in our current offices.
We built the initial divisional structure of the new Financial
Ombudsman Service around the industry sectors, as reflected by the
rules and remits of the previous ombudsman schemes – with our
banking, insurance and investment divisions mapping out the areas
previously covered by the former separate schemes. But as ever-larger
volumes of new complaints came our way, it became clear we would
need increased organisational flexibility to help us manage wide-ranging
and unpredictable levels of demand. Following ‘N2’ (1
December 2001) – when we received our full legal powers and
a single set of new rules – we put our new organisational structure
in place.
Rather than having divisions which each deal only with banking
complaints or insurance complaints or investment complaints,
we now have ‘multi-disciplinary’ units that can each handle
the widest range of complaints. This new structure, which went live
in October 2002, reflects the increased blurring of old boundaries
in the financial services market. And it allows integrated teams
of adjudicators to deal with a broader range of complaints than
before – building on their former specialisms to develop wider
areas of expertise, in response to new patterns of complaint.
This flexibility of approach has played a major part in helping
us deal with the significant increase in complaints this year –
an increase which would almost certainly have overwhelmed the more
narrowly focused separate schemes of old.
Underpinning this move towards greater flexibility in the way in
which we handle complaints is our commitment to the development
of ‘knowledge management’ within the organisation. Knowledge
management – to which we have dedicated significant resources
this year – is all about the way in which we capture, store
and share our technical expertise, to ensure a consistent and efficient
approach to resolving disputes. This is vital in an organisation
where over 250 adjudicators and 20 ombudsmen are making decisions
on hundreds of complaints every day.
Knowledge management is not just about computer systems –
it is about the way in which we train and develop staff, as well
as the way we share information and learn from each other. Knowledge
management is an essential part of our ability as an organisation
to respond flexibly to constant change.
accessibility
The ombudsman service is here for people from all backgrounds. Using
our specialist knowledge, we investigate the real issues on the
basis of the individual facts – to decide who is right, not
who has best presented their case. We continue to scrutinise our
procedures to make sure that no one should be disadvantaged by the
complaints process and, increasingly, we use the phone and email
where customers prefer this.
Our monthly customer satisfaction surveys include demographic questions
to track which groups of consumers are using our service –
and what they think about the way we work. There are more details
about this in key facts and figures.
We are especially keen to ensure that no one is discouraged from
using the ombudsman service because of language barriers or other
difficulties. We frequently handle phone calls – and provide
information – in languages other than English. And we are pleased
to respond to continuing demand for information in formats such
as Braille and large print and on audiotape.
cases with regulatory implications
In June 2002, the FSA published a report called Treating Customers
Fairly. At the same time, we updated our memorandum of understanding
with the FSA – the document is available on our website. The
FSA report and the memorandum explored and advanced the approach
that we and the regulator might expect to take, if we received complaints
that appeared to have regulatory implications and that might be
susceptible to a regulatory solution.
This approach has worked well as a framework against which we and
the FSA can test out whether regulatory action might provide an
appropriate resolution to a series of complaints. In some cases,
the FSA has informed us of intended regulatory action that has caused
us to adjust the timing of our consideration of complaints. In other
cases, the FSA has indicated to us that regulatory action was not
required and that we should continue with our process.
For reasons of confidentiality, it is not possible to go into detail
about the various discussions we have had with the regulator about
these types of cases. But as far as the ombudsman service is concerned,
I am satisfied that these arrangements pose no threat to the independence
of our decision-making – and do not prejudice the interests
of consumers or of firms. On the contrary, I believe that any external
scrutiny would show two organisations – with public functions
that occasionally have the potential to overlap – communicating
appropriately and operating effectively to serve the public interest.
the ‘Sandler review’ of medium-term
and long-term retail savings
We were pleased that Ron Sandler involved us in his review of medium-term
and long-term retail savings. We have subsequently worked with the
FSA and HM Treasury on their consultations on the ‘Sandler
proposals’. We have also discussed the proposals and their
implications with a number of firms, trade associations and consumer
bodies.
We have welcomed this opportunity to contribute to the development
of the proposed new range of products and sales regime. These savings
products will have a number of features providing safeguards for
consumers – and a lighter set of regulatory requirements will
govern the sales process. However, as the proposed products will
be equity-based, they will not be risk free.
We have been able to make some practical suggestions about how
the proposed sales process might minimise the possibility of complaints
arising. And I hope we have been able to provide reassurance about
the role we would play in resolving any complaints about these new
products.
communication and information-sharing
Our work gives us a unique insight into how complaints arise and
how complaints might be avoided. There are valuable lessons from
this for both the financial services industry and for consumers
– and we carry out a wide range of activities to share our
experience and knowledge with the outside world. These activities
range from organising roadshows and workshops – including the
successful launch of our nationwide series of working together
conferences – to publishing our regular newsletter, ombudsman
news, and running our technical advice desk.
There are more details about our external liaison and communications
activities in key facts and figures.
legal framework
As a public body, the Financial Ombudsman Service can be challenged
in the courts – including through the judicial review process.
During the year we successfully contested twelve legal actions brought
against us – and three cases were settled by reaching an agreement
involving a fresh ombudsman decision. Cases in court this year included
the judicial review brought by Norwich & Peterborough Building
Society. There is more information about this court action in overview
of complaint trends.
In February 2003 the time limits for making a complaint to the
ombudsman service were changed. This followed consultation by the
FSA in December 2002 and the publication in January 2003 of the
FSA’s policy statement, Mortgage endowment complaints: Changes
to time limits for making a complaint – Feedback on CP158 and
made text. We summarised the three key changes resulting from
the amended rules in an article published in our March 2003 issue
of ombudsman news.
extending our jurisdiction
During the year, we consulted publicly on extending the scope of
our voluntary jurisdiction, to enable us to look at further complaints
which were not already covered automatically by our compulsory jurisdiction.
In the light of the responses we received, we announced in December
2002 that we would extend our voluntary jurisdiction from 1 April
2003 to cover:
- complaints about mortgage intermediaries;
- complaints about insurance intermediaries; and
- complaints about events that happened before regulation by the
FSA.
In January 2003 we opened the door to applications from firms interested
in joining the extended voluntary jurisdiction. We launched a special
section on our website with detailed information and a checklist, to help firms see how
the voluntary jurisdiction might apply in their case.
At the date of writing this report, 221 additional firms have joined
the voluntary jurisdiction – including a number of national
brokers. These firms are clearly ahead of the game in recognising
the advantages of signing up with the ombudsman at an early stage.
Mortgage and insurance intermediaries that join our voluntary jurisdiction
find it enhances their reputation for being client-focused. It also
helps them and us prepare for the time when the ombudsman service
is likely to become compulsory for these sectors – in October
2004 for mortgage brokers and in January 2005 for insurance intermediaries.
Walter Merricks
June 2003
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