any measure, this year has been one of exceptional activity for
the Financial Ombudsman Service. During the year we received –
and resolved – more complaints than ever before. In the four
years since we brought our predecessor dispute-resolution schemes
together under one roof, we have seen our workload almost quadruple.
This year alone, the number of new complaints reaching the ombudsman
service increased by 57% on the previous year (which itself saw
a 44% annual increase).
significant rise has been driven by the flood of mortgage endowment
complaints – from under 15,000 last year to over 50,000 this
year. Neither we nor the financial services industry – which
we consult on our workload estimates – had forecast a surge
on such a major scale. It has meant that this has been a year of
dealing with big numbers and big operational challenges.
dealing with the volume
public consultation at the start of 2003, our budget for the financial
year 2003/04 was originally set on the basis that we could expect
to receive a total of 60,000 new cases during the year – including
20,000 complaints about mortgage endowment mis-selling.
during the late summer of 2003 we saw a doubling in the volume of
mortgage endowment complaints reaching us. This pushed up the average
number of new cases from around 1,000 new cases a week to almost
2,000 a week – and led us to look again at our estimates for
the year as a whole. And in September 2003 we published an updated
half-yearly plan & budget, to take account of this
mid-year upsurge in complaints. These revised mid-year estimates
proved accurate. We forecast in September 2003 that by the end of
the financial year (31 March 2004) we would have received 98,000
new complaints in total, 50,000 of which would be mortgage endowment
cases. The actual figures for the year turned out to be 97,901 new
complaints, of which 51,917 were mortgage endowment-related.
operational terms, this substantial increase in complaints during
the year – driven largely by waves of publicity about mortgage
endowment mis-selling, split-capital investment trusts (‘splits’)
and so called ‘precipice’ (or high income) bonds –
required an immediate action plan on our part, to deal with our
rapidly increasing workload.
introduced a range of initiatives, including:
new case-handling procedures;
a more flexible approach to managing caseloads;
new ways of moving and re-allocating resources; and
almost a hundred more new staff, in addition to the hundred
already recruited since the revised budget for the year 2003/04
was agreed in April 2003.
We also kept in close contact with our key stakeholders –
including the Financial Services Authority (FSA) and consumer and
industry bodies – to discuss the budgetary impact and operational
ramifications of our increased workload.
a result of these measures, we were able to resolve a record number
of complaints during the year – completing 76,704 cases (a
36% increase on the number we settled in the previous year). We
expect an even greater increase in the number of cases we resolve
next year, when staff recruited during the past twelve months or
so complete their intensive training and become fully productive.
This should enable us to reduce substantially the amount of work-in-progress,
which we monitor especially closely when unexpected surges of new
complaints result in our having to re-allocate and maximise resources.
Continued flexible working, together with the economies of scale
involved in dealing with large volumes of mortgage endowment complaints,
resulted in a reduction in our unit cost – the benchmark against
which we judge our cost-effectiveness in handling complaints. The
unit cost fell during the year to £473, having been £518
last year and £684 the year before that. However, when the
current wave of mortgage endowment complaints eventually subsides
and our work returns to handling a more balanced range of disputes,
there are likely to be fewer opportunities to benefit from the economies
of scale we have experienced in recent years. This means that we
are unlikely to see the continued downward trend in our unit cost.
chapter, key facts and figures, in this review gives 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.
External feedback confirms, not unsurprisingly, that consumers expect
us to resolve their complaints as speedily as possible. In last
year’s annual review I set out our new targets for
the time it takes us to resolve complaints. These targets are to
complete 45% of cases within three months, 80% within six months
and 90% within nine months.
the year, although we narrowly missed our six-month target –
resolving 79% of complaints within 180 days – we slightly
exceeded the three-month target, resolving 47% of complaints within
90 days. We met our nine-month target and resolved 91% of complaints
within that timescale. Our board received a schedule of cases that
we were not able to resolve within twelve months.
quickest and most effective dispute-resolution tools available to
us are usually mediation and conciliation. By taking a fresh look
at the facts and suggesting common ground, we aim to bring together
the two sides of a complaint and resolve matters at the earliest
stages with an informal, mutual settlement. This can reduce the
need for lengthy and time-consuming investigations and formal decisions
by an ombudsman. The average time taken during the year to resolve
a complaint by ‘guided mediation’ was four months.
disputes can take much longer if either the consumer or the firm
requests a more formal review – especially if the dispute
involves a substantial amount of paperwork, complex facts and entrenched
attitudes. Cases where a detailed review is needed in order to settle
a dispute – involving a final decision by an ombudsman –
take nine months on average.
is more information about the number of complaints we resolve at
the different stages of our complaints-handling process, in the
chapter key facts and figures of this review.
We have in place a system of internal processes to monitor, on an
ongoing basis, the quality of our work. Internal quality reviews
– which include random sampling by management – analyse
casework against specific criteria: accuracy, timeliness, thoroughness,
reasonableness of outcome, and whether the customer was kept fully
informed about progress.
customer satisfaction research provides another important input
into our quality assurance work. We carry out monthly surveys to
record the views of those who have used our service. We then measure
this external feedback against the customer service benchmarks that
we use in our internal quality monitoring.
the year, we also carried out research to gauge the views of the
firms we deal with – asking for their views on the way we
handle complaints and the extent to which we accommodate their particular
needs and concerns. The results of these customer satisfaction surveys
are summarised in the chapter, our customers and stakeholders.
We decide each complaint on its individual facts, not on who has
presented their case best. The ombudsman service is here for people
from all backgrounds. The process of bringing a complaint to us
should not discourage consumers who believe they have a genuine
grievance. And no-one should feel disadvantaged because of language
or other difficulties.
people prefer to talk through their complaint with us over the phone,
rather than to write us long formal letters of complaint. Over half
of the consumers who bring complaints to us now register their complaint
by phoning our consumer helpline (0845 080 1800).
This is also more efficient for us, because we can guide people
to focus on the key facts of the case. In addition, people are increasingly
using our website to download and complete our complaint form –
and to access information about the complaints procedure. Around
75,000 people are now logging on to our website each month.
the year we handled phone calls and provided information in 23 languages
other than English. And we continue to respond to increasing demand
for help and information in formats such as Braille, large print
and on audiotape.
is important to us that people with different needs should not face
any barriers to using our service. This is why our monthly consumer
satisfaction surveys include demographic questions, tracking which
types of consumers are using our service and what they think of
it. There are more details about this in the chapter, our customers
and stakeholders, in this review.
landscape has been dominated this year by mortgage endowment complaints.
This probably reflects the position for many retail financial services
firms. In order to deal with the 50,000 new mortgage endowment cases
we have received this year – around half the total number
of our new complaints – we have had to review and streamline
example, simply coping with the vast increase in the amount of paperwork
accompanying the growth in complaints has been a major challenge.
We have developed new ways of managing casework, with teams of support
staff carrying out more of the administrative aspects, leaving adjudicators
more time to concentrate on making decisions.
benefit from the economies of scale involved in handling large numbers
of essentially similar complaints, we set up a special team during
the year to work solely on mortgage endowment complaints –
rather than on the range of disputes handled by the other teams.
This team developed streamlined procedures with the largest firms,
to make the exchange of data quicker and more effective at all stages
in the process. We are now building on this work and expanding the
mortgage endowment team substantially, so that the processes that
this team has developed can be applied to the further 50,000 or
so mortgage endowment complaints that we now expect to receive in
we continue to focus resources – in the short term –
on handling large volumes of mortgage endowment complaints, we also
need to keep an eye, for planning purposes, on what might happen
after next year. A major issue affecting mortgage endowment
disputes will be the ‘time-barring’ of complaints, as
the time-limits for complaining start to expire. These time-limits
usually involve consumers having to complain within three years
of becoming aware of the problem. This generally means three years
from receiving what is known as a ‘red’ re-projection
letter from the insurer – warning of a high risk
that the policy will not produce enough, when it matures, to repay
the target amount.
consumers are generally unaware of these time-limits – and
of the fact that time is running out if they want to complain. However,
the changes to the FSA’s time-limit rules – announced
in May 2004 – now mean that people will be given a clear warning
of the date on which their right to complain will expire. This should
considerably ease the problem that would have faced us, in having
to ‘time-bar’ many thousands of complaints from consumers
who would otherwise have been unaware of the time-limits.
may, therefore, expect to see increasing numbers of people with
mortgage endowment complaints during the second half of 2004 –
as consumers receive warnings about imminent deadlines for complaining.
This concentration of complaints may pose further operational challenges,
first for the industry and then for us. However, as the time-limits
pass, and all those who wish to complain have done so, the wave
of mortgage endowment cases should eventually subside – and
our work patterns will need to change yet again.
our work returns to handling a more balanced range of disputes,
and – we may hope – a reduced number of complaints,
there will be fewer financial benefits from economies of scale.
This means that our unit cost, which has decreased significantly
in recent years, may stabilise rather than continue to reduce.
the year there has been significant interest in our handling of
complaints involving split capital investment trusts and zero dividend
preference shares – 'splits' and 'zeros'. Following my appearance
before the Treasury Select Committee in October 2002, as part of
its enquiry into 'splits', we have kept the Committee updated on
our work on the 4,800 individual 'splits' complaints that we have
work proceeds in tandem with the FSA's wider investigations and
we liaise closely with the regulator, to ensure that our different
focuses of work within the same area can feed into and complement
each other. I am satisfied that the separate but interlocking issues
of regulation and redress can be dealt with appropriately and effectively
in this way.
is a more detailed overview of the work we have done in relation
to 'splits' complaints, in the chapter overview of complaint
trends, in this review.
surrounding Equitable Life have also continued to come under intense
media and parliamentary scrutiny during the year. While other investigations
and enquiries – notably those carried out by Lord Penrose
and the Parliamentary Ombudsman – have been ongoing, we have
continued with our own work on the complaints we have received alleging
mis-selling and maladministration by Equitable.
majority of these complaints are linked to ‘lead’ cases.
This is the procedure we use if we receive a substantial volume
of cases that appear to involve essentially similar issues. By focusing
initially on what we term ‘lead’ cases – a handful
of apparently typical complaints – we are able to establish
the key general principles and save duplicated effort for all concerned.
have a page dedicated to Equitable Life on our website.
We update the page regularly so that people can check developments
and progress, especially on the ‘lead’ cases. A number
of the legal opinions that have been sought on issues relating to
Equitable and redress are also available from this web page.
forecasting of complaint volumes for future years is, inevitably,
an art rather than a precise science. It includes a budget contingency
in case we need to handle a sudden, unpredicted flood of complaints
on some topic about which we had not previously received complaints
in any number.
two years ago, we had received only a few complaints about what
have now been dubbed ‘precipice bonds’ – investment-linked
products where promised high levels of income can put the capital
at serious risk. In the year ended 31 March 2003, we received around
2,500 complaints about these products – which had been sold
in great numbers in the late 1990s, as interest rates on ‘traditional’
savings started to fall. This year, the number of ‘precipice
bond’ complaints we have received has risen to 6,000.
includes complaints both about the financial firms that launched
and marketed these products – and about intermediary firms
that gave advice on them to customers. We have liaised closely with
the FSA, where our work on individual cases complements the wider
regulatory investigations being carried out by the regulator.
is a more detailed overview of our work in relation to ‘precipice
bonds’ in the chapter, overview of complaint trends.
the ‘N2 + 2 review’
November 2003 – two years after the date when the Financial
Services and Markets Act 2000 came into force (the date widely known
as ‘N2’) – the Financial Secretary to HM Treasury,
Ruth Kelly, announced details of the so-called ‘N2 + 2 review’.
Ruth Kelly confirmed that part of this review would include the
Financial Ombudsman Service and the FSA, and would look at how the
ombudsman process interacts with the FSA’s regulatory framework.
The review would also consider the case for amending the process
of appeal against ombudsman decisions.
issues – generally referred to as the ‘wider implications’
and ‘appeals’ issues – have been the subject of
debate throughout the year by firms, trade bodies and consumer groups,
each tending to express individual and frequently divergent views
on these matters.
Ruth Kelly’s announcement, we and the FSA appointed a group
of expert stakeholders to oversee the scope, terms and conduct of
the consultation process on ‘wider implications’ and
appeals. This group – the Review Oversight Group – met
regularly during the first few months of 2004. Chaired by Colin
Harris, chairman of the Mortgage Code Compliance Board, the other
members are: Matthew Bullock of the Financial Services Practitioner
Panel; John Howard of the Financial Services Consumer Panel; Roger
Sanders of the Small Business Practitioner Panel; and Diana Wright,
personal finance writer for the Sunday Times.
consultation with trade bodies and consumer groups was carried out
in the early spring of 2004, prior to the launch of a full public
consultation. The overall ‘N2 + 2 review’ is expected
to be completed by November 2004. Ruth Kelly indicated at the launch
of the review that the importance of the ombudsman to consumer protection
is such that any changes to the regulatory structure should be made
only after careful consideration and consultation.
extending our jurisdiction
and insurance intermediaries
In our last annual review, I reported that we had opened
the door to applications from mortgage and insurance intermediaries
interested in joining our voluntary jurisdiction before
the start of statutory regulation by the FSA – when these
sectors will automatically be covered by our compulsory
300 firms have now joined our voluntary jurisdiction. By signing
up with us at an early stage, these firms are making a positive
customer service commitment, as well as gaining valuable experience
of what being covered by the ombudsman service involves, so they
will face less change when they become FSA-regulated. Firms joining
our voluntary jurisdiction during the year have been able to benefit
from our full range of services for firms – including training
on complaints handling, access to seminars and workshops, and support
and guidance from our technical advice desk.
in our voluntary jurisdiction will also benefit from a change we
have introduced to our funding arrangements, whereby we will not
charge a case fee for the first two complaints we receive each year
about a firm.
dates are approaching when the FSA will begin regulating mortgage
and insurance intermediaries – 31 October 2004 for mortgage
brokers and 14 January 2005 for insurance brokers – and we
have focused on the logistical preparations for dealing with some
20,000 of these firms that are then likely to come into our compulsory
the extension of our compulsory jurisdiction means the number of
firms we cover is set to triple, we do not expect to receive a significant
number of additional complaints as a result of this wider coverage.
We have based this expectation on the complaints-handling experience
of the Mortgage Code Compliance Board and the General Insurance
Standards Council – and also on our own experience in receiving
no complaints about the vast majority of smaller firms that we already
cover. (The chart how often do financial firms have complaints
about them referred to the ombudsman service? in the chapter
our customers and stakeholders that almost 80% of firms
covered by the ombudsman service had no complaints against them
referred to us.)
in itself, presents us with a communications challenge, in terms
of keeping in touch with a large number of firms who will never
– or only very rarely – have any direct contact with
us. We recognise that smaller firms, currently preparing for regulation
for the first time, have a lot on their plate. Many see the ombudsman
as, at best, just another ‘necessary evil’ of regulation
– not something to be engaged with actively, unless absolutely
necessary. Unfortunately, the perceptions that these firms have
of us are more likely to be based on industry hearsay and ‘urban
myth’ than on the real facts.
from the many industry conferences and trade shows we take part
in, together with our experience at the broker roadshows we organise
around the country, certainly suggests that most smaller firms view
the ombudsman as peripheral to their core business concerns –
unless and until a customer actually lodges a complaint against
In December 2003, as part of its review of the regulation of the
consumer credit sector, the Department of Trade and Industry (DTI)
published proposals to introduce a statutory complaints-handling
body as an alternative to the courts (which currently is the only
recourse for many people with consumer credit disputes). One of
the models suggested as an ‘alternative dispute-resolution’
scheme for consumer credit complaints is an ombudsman-type arrangement,
and it has been suggested that the jurisdiction of the Financial
Ombudsman Service could be widened further so that we could cover
already cover complaints about consumer credit provided by banks
and building societies. But we do not cover disputes involving store
cards or ‘non-bank’ credit. As far back as my first
annual review as chief ombudsman (the review for the year
1999/2000), I highlighted our long-term objective of providing seamless,
comprehensive coverage as the ombudsman scheme for financial services.
We already cover disputes involving firms that, together, provide
around 75% of all consumer credit by value. However, the majority
of everyday smaller-scale consumer credit arrangements involve a
wide range of firms that we do not cover. And for many of the consumers
involved in these particular arrangements, the implications when
things go wrong are proportionately just as grave as for those consumers
who are currently able to come to the ombudsman service.
these reasons, we view very positively the idea of extending our
jurisdiction to cover consumer credit activities. We are in constructive
dialogue with the DTI and the Office of Fair Trading about the proposals.
We have also been in dialogue with consumer bodies and trade associations
in this field. There are a number of practical issues to be resolved
– such as the importance of consumer credit firms having proper
in-house complaints-handling procedures as the first stage of the
dispute-resolution procedure. And a decision is needed about which
of the tens of thousands of firms currently holding consumer credit
licences – from credit card companies to debt consolidation
agencies – should be covered by the proposed dispute-resolution
scheme, possibly with coverage being phased in over time.
would also be concerned to ensure that any role we might be asked
to take on in relation to consumer credit disputes should reflect
our established position as an ombudsman scheme. We are not a regulator,
nor are we a consumer champion nor a trade body. Building on principles
established by our predecessor ombudsman schemes, we have well-developed
arrangements for our operations and governance. In particular, we
do not believe it would be appropriate, as an ombudsman scheme,
to take on any quasi-regulatory functions involving issues that
have a wider market effect.
an organisation that has grown very rapidly and that deals every
day with thousands of pieces of correspondence and makes hundreds
of decisions on complaints, we recognise that things can and do
go wrong. When we look at complaints, a key consideration is the
way in which the firms concerned have taken steps to try and put
things right. In just the same way, we believe an important test
by which we should ourselves be judged is the way in which we recognise
and deal with any shortcomings – and learn the lessons from
is why, just like the firms whose complaints we handle, we have
our own formal complaints procedures to deal with expressions of
dissatisfaction with our service. And a small specialist team of
complaints handlers – our service quality team – handles
all complaints about us that we cannot easily sort out straightaway.
our service quality team cannot resolve a complaint, it can be referred
to our own ‘watchdog’ – the Independent Assessor.
Last year, the Independent Assessor, Michael Barnes, carried out
a review of 121 complaints about the service we provided. We accepted
his recommendations in all 28 cases where he said we should pay
compensation. The Independent Assessor provides our board with an
annual report, detailing the range of issues referred to him and
highlighting where we may need to look again at our procedures.
stresses and strains of having to cope with a caseload that has
grown so massively in such a short space of time will inevitably
have some impact on our ability to deal with every piece of correspondence
– and every decision – to the highest standards that
we and our customers should expect. In recognition of concerns about
the possible effect of the huge volume of work on our quality standards,
we are committed to rigorous monitoring of our output. Building
on various internal review processes and quality checks that we
already have in place, in January 2004 our board commissioned Professor
Elaine Kempson of the Personal Finance Research Centre at Bristol
University to carry out an independent assessment of our process
and output in terms of quality, consistency and value.
range of new initiatives introduced to deal with the near four-fold
increase in mortgage endowment complaints, in particular, has required
close monitoring to ensure standards are not compromised by the
need for more effective processing of cases. As part of these internal
review processes, a specific number of instances were identified
where cases were not being handled in accordance with our normal
We have instituted a review of all the cases involved, to take steps
to rectify matters where necessary.
is a timely reminder for us of the importance of rigorous checks
and counter-checks, to ensure we arrive at an appropriate decision,
having followed the right procedure.
talking and listening
work gives us a unique insight into how complaints arise and how
they 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. During the year we took part
in over 650 activities involving external stakeholders. These activities
included organising roadshows and conferences, and providing complaints-handling
training for firms and consumer advisers. There are more details
about our external liaison and communications activities in the
chapter, our customers and stakeholders.
recognise that people’s personal experience of our service
is inevitably influenced by the outcome of their own complaint –
and this means we cannot always please everyone. However, seeking
the views of those who have used our service is an essential part
of finding out where we can improve, and we bear in mind our stakeholders’
comments and concerns when we formulate our policy and operational
approach. There are some examples of this in the chapter, our
customers and stakeholders.
The annual review is, of course, a particularly appropriate
opportunity to canvass the opinions of all those with an interest
in our service. I hope that readers will continue to give my colleagues
and me helpful feedback on where we need to do things better in
future – or even on where we may already be getting things
just about right.
I would like to express my particular thanks this year to all the
staff of the ombudsman service, who have shown admirable fortitude
in the face of a major increase in workload. While I hope that our
incentive scheme has to some extent reflected the sheer hard work
and effort put in by staff during a particularly challenging year,
I recognise that this is only modest recompense for the many extra
evening and weekend hours put in to keep up with the relentless
tide of complaints. The board and I are grateful and fortunate to
have been able to rely on the continued dedication of our staff.