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annual review 1 April 2002 to 31 March 2003 - chief ombudsman's report

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.

fact file - during the year we ...

  • received 375,000 calls on our consumer helpline (0845 080 1800) and 1,454,500 calls to our switchboard and direct lines
  • paid over 10,000 suppliers' invoices - and issued 64,500 of our own
  • held 30 hearings to help resolve cases on a face-to-face basis
  • used 180 gigabytes of computer storage for our letters and decisions
  • sent out 860,000 items of post
  • awarded redress ranging from a bunch of flowers to £100,000

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.

fact file - during the year we ...

  • distributed a million copies of our consumer leaflet - in 15 languages and in various formats
  • handled 3,250 job applications and recruited 140 new members of staff
  • took part in 518 external liaison events - ranging from industry conferences to visits to citizens advice bureaux
  • received and sent 1.5 million external emails
  • opened 389,933 items of post
  • welcomed 1,300 people on visits to our offices
  • detected and stopped over 1,000 virus threats from incoming email

focus on quality


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.


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.


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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