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annual review 1 April 2005 to 31 March 2006 - the independent assessor's annual report

to the board of the Financial Ombudsman Service by Michael Barnes CBE

The independent assessor's role is to carry out a final review of the service provided by the Financial Ombudsman Service, in cases where a user of our service (whether a consumer or a firm) has already referred the matter to our service review team for investigation but remains dissatisfied.

Under his terms of reference, the independent assessor can consider complaints about our procedures and the behaviour of our staff. Disagreements about the merits of decisions are excluded from his jurisdiction. The independent assessor is authorised to make findings and recommendations for redress in cases where he believes it is justified.

During the year ended 31 March 2006, 322 cases were initially referred to me - almost exactly the same number as in the previous year (when I dealt with 319 referrals).

I carried out a full investigation and review of the file in 186 of these cases - a 13% increase on the 164 cases I investigated in 2004/05. The number I investigated represents 0.15% of the total caseload of the ombudsman service. Of the 136 cases where I did not carry out a full investigation:

  • 72 had been referred to me too early in the process - for example, before the service review team at the Financial Ombudsman Service had first been given the chance to resolve the matter;
  • 53 were enquiries rather than actual complaints;
  • 9 cases were outside my jurisdiction, either because they were referred to me more than three months after the service review team’s final response, or because they raised issues that were unrelated to the ombudsman service; and
  • 2 cases were not pursued further by the complainant.

I upheld the complaint about the ombudsman service (either wholly or in part) in 76 cases (compared with 58 in the previous year). In 68 of these 76 complaints, I recommended that the ombudsman service pay compensation for distress or inconvenience caused to the complainant. The amount of compensation I recommended ranged from £50 to £750, with most awards falling between £200 and £400. It should be noted that in 31 of these cases, the service review team at the ombudsman service had already offered apologies or compensation - but I took the view that additional compensation was required. Again, I am glad to report that the ombudsman service accepted all my recommendations.

Delay continues to be the most common cause of complaint - followed by allegations of unfair treatment and poor service of one kind or another. Although they represent only a small proportion of the complaints I see, there has been an increase in the number of cases where a successful complainant is not satisfied that the ombudsman service has done enough to ensure the firm’s calculation of loss is in accordance with the ombudsman’s decision.

Typically, this can arise in cases where the ombudsman is unable to quantify the compensation due, when he or she issues their final decision - and instead specifies the calculations that the firm needs to carry out in order to establish the extent of the loss. The fact that it is the firm that carries out the calculation worries some complainants. One voiced her concern as follows:

What further input can be expected from the ombudsman, if the firm is dilatory in implementing the settlement, or attempts to manipulate figures or otherwise present calculations in a manner that is not clear or transparent?

In mortgage endowment cases, for example, consumers sometimes complain that the firm has not used the correct interest rates in applying the formula prescribed by the regulator, the Financial Services Authority (FSA). The most difficult cases, however, tend to be those involving mis-sold pensions, or investments such as “precipice bonds” and split-capital investment trusts. In one complicated pension case referred to me recently, the ombudsman had specified as many as seven preliminary calculations that needed to be carried out, before the loss could be established. My response to the complainant in such cases is to say that I will ask the service review manager at the ombudsman service to intervene further with the firm, to try and obtain an agreed settlement.

However, the Financial Ombudsman Service is not in a position to enforce settlement. If all else fails, it is the consumer who has to seek to have the ombudsman’s decision enforced by the courts. Even then, the consumer may not obtain the compensation due - if the case is vigorously contested by the firm. In another case referred to me during the year - where the ombudsman’s final decision had to be read in conjunction with his earlier provisional decision - the consumer ended up getting substantially less compensation than the ombudsman had clearly intended, when the matter came to court.

It is very difficult to say quite what the answer to this problem is. At the present time, the Financial Ombudsman Service has only limited actuarial resources, and can undertake to check firms’ calculations only in a small number of cases, where exceptional circumstances exist. To provide a routine checking service would probably entail setting up a whole new department - with all the additional costs this would involve. Whether there is scope for ombudsmen to make their formulaic awards more transparent - and less open to interpretation - is not for me to say. I merely flag up the problem, because it seems to me to be a matter to which the board of the Financial Ombudsman Service, and possibly the FSA, should give further consideration.

I have also seen an increase during the year in the number of complaints made by firms. I upheld 6 out of the 13 complaints I received from firms, most of which were independent financial advisers or stockbrokers. Roughly half the complaints related to case fees that had been charged, when the complaint had subsequently been dismissed without consideration of the merits or had been deemed to be outside the ombudsman’s jurisdiction. However, only in one case did I consider that the £360 case fee should be refunded in full. This is because it is often only after a case has been passed for assessment - thereby triggering the case fee - that it becomes clear that the complaint is not one that the ombudsman service can investigate.

Finally, I must repeat my customary warning that the cases I investigate represent only the smallest fraction of the total number of complaints handled by the ombudsman service - so care must be taken in drawing any general conclusions from my observations.

Michael Barnes signature

Michael Barnes CBE April 2006