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where we might, and should, be going ...

Sir Nicholas Montagu, chairman of the ombudsman service, speaks at the Insurance Institute of London

London, February 2013

I am delighted to be invited to talk to the Insurance Institute of London. Apart from the honour itself, it marks a refreshing change from speeches I do about transforming the Inland Revenue. Those make me feel like a rather elderly war historian, while today's lecture is more that of a relatively young and sprightly war correspondent.

I want to use this talk to take a relatively dispassionate look at where the Financial Ombudsman Service is - and where we might, and should, be going. I say "relatively dispassionate", because I confess that I have become a bit besotted with the organisation since taking over as chairman a year ago - and relish the opportunity to boast about it.

That is because I believe that we have a great deal to boast about, in terms of our performance and of the values that underpin it. I can honestly say that I have never worked in any organisation that was more or more consistently values-driven.

But boasting is only pardonable if it isn't accompanied by complacency. And so far as the ombudsman service is concerned, there is no room for that.

This is partly because of the sheer scale of the challenges that confront us. No organisation can take pride in having to take over a year to settle a PPI complaint. But then, I would argue that there aren't too many organisations that could have begun to cope with the challenge of dealing with over 10,000 new PPI cases every week - which is what we are now having to do.

And we're also not complacent about having now been in existence for twelve years - without having fundamentally changed our business model and working methods.

And just think what has happened in those last twelve years. When we started in business, tweeting was confined to cartoon canaries; a smart phone was probably one that came with a built-in answer phone; and social media meant family and friends clustered round the television.

Meanwhile, the ombudsman service has remained pretty much unchanged. Not, of course, in terms of the technology at our disposal and our readiness to make use of whatever is new and will enable us to provide a better service. Nor in terms of our dynamism and the strides that we have made both as an employer and as a public service .

Nor, once again, in the cases we handle - think PPI or volcanic ash, though these are just the latest in a series of big issues of the day for financial providers and their aggrieved customers.

It is worth pausing on that word "aggrieved", to make the obvious point that in an ideal world the Financial Ombudsman Service wouldn't exist, because grievances would already have been resolved - just as in my Inland Revenue days I would argue to the Public Accounts Committee that in an ideal world our compliance yield would be zero.

So I want to start by talking about what we are at the ombudsman service. This might seem a bit like teaching my grandmother in front of an audience as old in sin as you are, while I am a relative newcomer. But there are so many misconceptions - even amounting to accusations from those with a particular axe to grind - that it is worth reminding ourselves what the Financial Ombudsman Service is and isn't.

Starting with some of the isn'ts may help me clarify the is. We aren't regulators by stealth. Regulators can move goalposts and, by doing so, change the nature of the game being played. Parliament is a regulator on this definition. So too is the Financial Services Authority. We aren't, and we don't want to be.

Our constraints are those of the law and of what is fair and reasonable. And of course, we also have regard to rulings by the regulators. What is true is that through our decisions we can clarify what we believe it is fair and reasonable for people to expect from the arrangements they have entered into with a financial provider or intermediary.

I would argue that this is a strength. Things like how travel insurance applies to volcanic ash, or what people who take out insurance for the duration of their pet's life are entitled to expect, are complicated subjects. Our decisions help both sides to know where they stand.

Nor are we the champions of the consumer. It is in the definition of what an ombudsman service is that we should be neutral, and we are. What is undoubtedly true, however, is that for many consumers we are something of a refuge - an organisation that promises them a fair hearing against a financial institution which has all the might of its resources behind it when it turns down their complaint or offers them what they consider inadequate compensation.

We can redress that inherent imbalance of power, and - unlike the claims management companies into whose hands too many still fall - we can do so free of charge and from a position of genuine impartiality. That, once again, I would argue is a considerable strength.

So where are we, and what are the constants in a world of rapid change? I go back to those core values that I mentioned a few minutes ago. If we stop doing the right thing - stop treating our customers well and respecting their needs, and stop doing what we say we'll do - we might as well pack up and go home.

Those values lie at the heart of our purpose and our approach. And they will continue to do so. Both because they are right, but also because they are essential to people trusting us.

Trust is the cornerstone of any organisation that is effective in settling disputes between parties and increasingly, and healthily, it is something which has to be earned, not taken as read.

One of the figures in which I take most pride is the high percentage of consumers who say we are fair after we have found against them. That to me is an indicator of high confidence, confirmed by survey results that say 70% of people trust our service, even though only half of them win their cases with us.

It is because we have that trusted position that I also believe we are well-placed to help the banks - and financial institutions generally, who have suffered from the contagion of public distrust of the banks - to recover public confidence. A genuinely disinterested broker whose honesty is not in doubt is able to feed back the expectations of consumers and help shape the response to them.

In a world as fast-moving as ours, we need to be constantly running to stay still if we are to maintain that position of trust. That is why we have pledged ourselves, in keeping our values constantly burnished, to be flexible, reliable and effective; to run a lean and efficient organisation; and to share our insight and experience to help prevent future problems.

That is not mere rhetoric: making it a reality in a year when we expect to answer 2.2 million frontline consumer queries, work on 385,000 new cases and resolve 245,000 PPI disputes is quite a challenge in itself.

Without a commitment to flexibility and a constant search for improvements and better ways of doing business, we would be able to offer nothing but the prospect of mounting backlogs. And we have seen all too graphically from some government agencies how that can lead into a vicious spiral of further deterioration, loss of reputation and ridicule. The Financial Ombudsman Service is not going there.

That is why, even in my short time at the ombudsman service, we have found better ways of tackling cases. We are getting away from paper to scanned documents and e-transactions. We have drawn our ombudsmen's expertise more closely into our daily work. We have reorganised the way in which we handle incoming PPI calls, so that we can concentrate more specialised understanding on those cases from the very beginning. And we have devised ground-breaking approaches to give consumers a better feel for whether or not they have a claim that is likely to succeed.

But we are also restless, because we know that we could do better - and we want to. I think that external factors are working in our favour in this aim.

The new Financial Conduct Authority (FCA) will provide a regulator with a clearer focus on, and feel for, the issues we are dealing with. The provision enabling "super complaints" complements that with a useful implicit recognition that, when we encounter trends in complaints, they should be flagged up in time for the regulator to take the necessary pre-emptive action.

And the requirement to publish the decisions of our ombudsmen will reinforce the transparency that is inseparable from our purpose - and give people a better understanding of why complaints succeed or fail.

We must never lose sight of our stakeholders - and simply assume that they are doing OK. And of course, financial institutions and IFAs are every bit as important to us as stakeholders as consumers.

I spoke a moment ago of the FCA. But I also think that the changes we are ourselves making, particularly to the way that we are funded, will help both our internal aims and our relationships with financial businesses.

Increasing the number of "free" cases to twenty five - and entering into new arrangements with the big four banks who account for some 60% of our work so that they pay up front - sends a clear signal about directly relating the cost burden to the number of complaints. That is of a piece with the approach to regulation which relates the heaviness of the hand to risk. And I believe that it is the right one.

Let's pause a moment and take stock. I have painted a picture of an organisation that is succeeding, despite substantial challenges, and has shown itself adaptable and flexible. What more is there to say? Well, rather than be Dr Pangloss - Voltaire's representative of extreme optimism in Candide - let me be Robert Redford, saying to Paul Newman at the end of The Sting, "It's good ... but it's not enough".

I said at the outset that our basic business model had not changed in the twelve years of our existence. That's true, but let's not overlook the fact that it has served us pretty well. And that for the more complex cases that we will continue to receive, it may still be the right model.

But that remark in itself implies the need to distinguish better between types of case - or, if you like, to have better segmentation.

I see segmentation as critical in a future which, while by definition unclear, is certain to see customers increasingly impatient for a quick resolution to a simple dispute.

Let's take extremes. More and more people will be carrying out financial transactions using their phones. Is a 25-year old using their phone for a payment that somehow goes wrong going to want to wait months while the complaint goes through the same detailed processes that are rightly required to determine whether volcanic ash was technically a weather condition under a travel insurance policy?

Luckily there is light at the end of the tunnel - though, as the person who privatised the railways, I am always uneasily aware that such a light could be an oncoming train. We have already proved ourselves fleet of foot and adaptable to new worlds.

Last year, we undertook a very successful experimental casework project involving e-money complaints - based on quick and informal settling of cases without any of the attendant bureaucracy. The record time from receiving a complaint to resolving it was twelve minutes, and it was routine to do so within a day.

And I could give similar examples from our work with RBS, helping their customers disadvantaged by the failure of their IT systems last summer.

I would see both these examples as straws in the wind for the future. They also illustrate the important point that we can only get better if our determination to do so - and our adaptability - are matched by those of the financial businesses with whom we must work in partnership.

So what might that future look like? We can, I think, be pretty sure that the way in which consumers and businesses interact will change rapidly, challenging many existing assumptions. In 15 years' time, say, our landscape will look very different. We will probably find ourselves in a world where the boundaries of financial services are far less clear cut. And existing providers would face strong competition from new entrants from other sectors.

In this future world, distribution channels would be more diverse and international. Design complexity would be hidden from most consumers. And terms like "dispute" and "complaint" would become outmoded, with officialdom of all forms increasingly disrespected and challenged.

The "wisdom of the crowd" would be more valued. Customers would have even higher expectations and would seek clearer and far quicker responses to all problems. Eight week "turn-around" times for handling complaints, official forms and formal processes would all be subverted by shared data, and open and immediate communication.

Set against this background, the Financial Ombudsman Service needs to make sure that consumers and businesses continue to see the relevance of an independent and impartial service - to help them navigate the landscape and resolve problems informally.

Everyone should value a universal service that commands trust - and should welcome a service that can impose settlements if necessary, and deal with the most complex of cases, as well more straightforward issues.

But, as I have indicated, our existing model will be of little use to most consumers of the future unless we start making changes now. We will need to become even more open and accessible - and more involved in problems at the frontline, as and when they occur. More nimble, too, with an ability to resolve matters in hours and days, not weeks and months.

We will need to be more adept at sharing and gathering knowledge and data from our own work, from others' work and from the general consumer and business environment.

And as technology develops at a speed and in directions that we can only guess at - remember that when President Clinton came to power there were just fifty pages on the worldwide web - it is critical that we continue our drive to be more online, more "virtually" accessible. And less paper-dependent and focused on procedures.

In terms of our organisation of the future, this means we will need to be more "knowledge based" - with the kind of high-level expertise that we currently associate with our ombudsmen embedded in future across all components of our work with businesses and consumers.

If we are to make a reality of the segmentation that I have argued is critical, complaints will continue to come to us through a universal gateway. But they will then need rapid differentiation, so that each receives the appropriate treatment at the appropriate speed.

Much of our work of the future may be achieved through partnerships - for example, with local frontline organisations and networks - and working patterns will need to be more diverse.

I need to make one other point. I am certainly not looking to develop the Financial Ombudsman Service's empire - we have quite enough to be going on with, given our existing soaring workload.

But we need to be realistic and recognise that - as technology moves on and the call for de-regulation and streamlining grows - we may face demands to merge with other organisations as our remits and boundaries converge. I have emphasised that adaptability is the key - that adaptability must cover the possibility of getting an extended or changed remit, almost without warning.

So can the ombudsman service face the future and its uncertainties with confidence? Quite simply, we can't afford not to.

For the foreseeable future, we may continue to need the capability to deal with the volatility of larger-scale problems - although I very much hope not again on the scale of PPI. But we will also need to handle individual consumer difficulties in a more agile and customised way. And much of our work on financial issues will touch on wider consumer problems - including, but by no means limited to, debt and financial hardship.

But perhaps most of all, as I have emphasised throughout, we need to be adaptable. Adaptable to changing consumer and business needs, adaptable to the impact of new technology, and adaptable to changing volumes and types of demand for the ombudsman.

But because we are strong, because we are already thinking about and working on these issues, and above all, because wherever I go in our organisation I find people who are talented, committed, open and genuinely up for it - these are the reasons why I answer my own question about facing the future with confidence - with a resounding "Yes".

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