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corporate plan & 2006/07 budget - a demand-led service

A key challenge is the fact that we are a demand-led service dealing with a workload that can rise or fall rapidly for many reasons - and in ways that can be difficult to predict - all outside our control. Managing our workload is not just a question of overall numbers. Surges in the number of cases about particular (and sometimes new) products also place demands on specialist expertise.

A range of factors affect the number and type of new enquiries and cases we receive and many of these factors are interdependent. The time-lag before they affect the inflow of enquiries and cases varies from one factor to another.

Some of these factors can also affect the handling of cases. For example, some firms that are under financial pressure may be more likely than others to fight their cases through all the internal ‘appeal’ stages of our process, as may some individual consumers.

jurisdiction The number of financial firms and activities we cover has increased, and is likely to go on increasing.

As government has extended the range of FSA-regulated activities, the FSA has extended our compulsory jurisdiction correspondingly. The number of FSA-regulated firms we cover has grown from around 8,000 when we were first set up to around 26,000 now.

Further extensions to FSA-regulation are in prospect for firms managing or administering personal pensions and for firms offering home-reversion plans.

National Savings & Investments has recently joined our voluntary jurisdiction. And the Consumer Credit Bill - if enacted by Parliament - will give us a new compulsory jurisdiction covering more than 100,000 active consumer credit firms, to be introduced in stages. (We already cover many consumer credit issues for FSA-regulated firms.)

economic factors Stock market performance affects investment returns. Generally, consumers do not complain about having been mis-sold a product if it does well.

More general upturns and downturns in the economic cycle affect the behaviour of consumers and firms in ways relevant to our work - as indicated below.

consumers An economic upturn may encourage consumers to borrow more, both secured (mortgages) and unsecured (credit cards and personal loans). An economic downturn may affect consumers’ safety margins and their propensity to complain.

Campaigns directed at consumers by consumer bodies - or by those with a financial interest, such as claims intermediaries - may affect complaint numbers. And press coverage of a financial ‘scandal’ appears to increase consumers' propensity to complain, too, about other - unrelated - financial products.

financial firms Because most firms resolve the majority of the complaints they receive, only a proportion come on to the ombudsman service. This means that a small change in a firm’s approach can have a large effect on us. For example:

  • if a firm satisfactorily resolves 95 in 100 complaints, 5 in 100 of these complaints may be brought to the ombudsman service;
  • if a firm satisfactorily resolves only 90 in 100 complaints (about 5% fewer), 10 in 100 of these complaints may be brought to the ombudsman service (100% more).

An economic downturn may lead some firms to cut costs (in ways that can affect service and so stimulate complaints). It may also affect the propensity of some firms to settle consumer complaints.

A variety of economic factors may encourage firms to amalgamate, reorganise or go out of business. The disruption associated with some amalgamations and reorganisations can stimulate complaints.

The number of complaints a firm generates can change if a ‘good’ firm takes over a ‘bad’ one - or vice versa. How the firm handles these complaints can also change. And a firm’s attitude to the fair treatment of its customers and their complaints may be affected by regulatory action or changes in management.

tax and benefits policy Changes in tax and benefits policy by successive governments can affect the attitudes of industry and consumers to the appropriateness of certain financial transactions. For example:

  • Changes in the benefits system for mortgage-payers indirectly affected attitudes to payment-protection insurance.
  • Changes in the benefits and tax systems affected attitudes to private pension provision, and to contracting-out of the state second pension.
  • Concerns about future pensions and the current level of consumer savings may encourage a wider range of customers to start investing.

regulatory The impact of regulation varies in different areas. Some FSA-regulated activities are subject to prudential regulation only, while others are also subject to conduct-of-business regulation. The powers of the OFT differ from those of the FSA.

The FSA’s treating customers fairly initiative aims to improve the way in which FSA-regulated firms deal with customers and handle complaints, if things go wrong. This may also raise consumers’ expectations.

Regulatory initiatives on consumer education may affect consumers’ willingness to buy, capacity to understand or propensity to complain - as may rule changes, such as the FSA requirement for firms to give consumers special warnings about time limits for mortgage endowment complaints.