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annual review 1 April 2004 to 31 March 2005 - the independent assessor's annual report

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

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 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 investigative process and the behaviour of our staff. Disagreements about the merits of decisions are expressly 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 2005, I dealt with a total of 319 referrals (367 in the previous year). I carried out investigations in 164 of these cases - an increase of 36% on the 121 investigations I carried out in 2003/04.

Of the 155 cases where I did not carry out a full investigation:

97 had been referred to me too early in the process - usually before the service review team at the Financial Ombudsman Service had first been given the chance to resolve the matter;

38 were enquiries rather than actual complaints (a 71% decrease on the 129 enquiries the previous year - probably as a result of growing awareness of how the complaints system works); and

20 cases were outside my jurisdiction, either because they were "out-of-time" or because they were outside the jurisdiction of the Financial Ombudsman Service.

I upheld the complaint about the ombudsman service (either wholly or in part) in 58 of the 164 cases that I investigated - just over a third, and roughly the same proportion as in 2003/04. In all but seven of the 58 complaints I upheld, I made a recommendation that compensation for distress or inconvenience should be paid - the amount of compensation ranging from £50 to £500. The ombudsman service accepted all the recommendations that I made.

I continue to receive a number of complaints about the ombudsman service's acceptance of the compensation calculations carried out by firms in mortgage endowment cases, where the complaint is upheld. The concept behind the methodology of the regulatory guidance on mortgage endowment redress, issued by the Financial Services Authority (FSA), is easy to understand - namely, to put consumers in the position they would have been in, if they had taken out a repayment mortgage. However, the problem seems to be that the manner in which the calculations are presented to the consumer lacks transparency, when surrender values, interest rates and possible life cover are fed into the equation. Clearly, the ombudsman service cannot be expected to check firms' calculations in every case. Nevertheless, I consider that the ombudsman service should always be prepared to re-run calculations when there appear to be strong reasons for doing so.

Another area where consumers have expressed strong views to me about the handling of their complaints has been where the dispute concerns the management of a sizeable portfolio of investments. In responding to the ombudsman service about such complaints, firms often make lengthy submissions defending their position. These submissions may not necessarily contain any new evidence that has to be disclosed to the consumer before the adjudicator drafts an assessment - but they may amount to a re-working of the response that the firm had previously given to the complainant, which seeks to present the events that occurred in a somewhat different light.

In several such cases referred to me during the year, consumers only became aware of the existence of such submissions at a later stage in the investigation - at which stage they considered that their position had been prejudiced as a result of not being able to comment earlier. In my view, the nature of portfolio management complaints is such that adjudicators need to take particular care in deciding what constitutes new evidence or argument, when they are considering representations received from firms. If they are in any doubt, it is always best to give the complainant further opportunity for comment.

Consumers whose complaints are upheld - particularly where large insurance claims are involved - may face a dilemma if the ombudsman makes a binding award of £100,000 (the maximum permitted under the rules) plus a recommendation that the firm should pay a further amount of compensation in addition to the £100,000. In one such case during the year, the consumer received an ombudsman's decision in his favour - but felt unable to accept it in full and final settlement. This was because he felt he would have forfeited the full extent of his entitlement under his insurance policy, if the firm declined to pay the additional recommended compensation - leaving him with only the binding award of £100,000. He therefore decided not to accept the ombudsman's decision but instead to negotiate with the firm himself - with the opportunity still open to him of taking legal action against the firm as a last resort.

In some cases, the ombudsman service is able to obtain an assurance from the firm - before the final decision is issued - that it will agree to pay the additional compensation recommended. In other cases that may not be possible, because the final figure on which the additional recommended compensation is based cannot be quantified when the ombudsman's decision is issued (for example, it may depend on the cost of building works yet to be carried out). Clearly, the situation as it stands is not entirely satisfactory. The £100,000 limit on binding awards was inherited by the ombudsman service from some of its predecessor schemes. It has remained at that level for many years and, in my view, should be raised to a substantially higher figure. That would be at least a partial solution to the dilemma I have referred to. I hope, therefore, that the ombudsman service will raise this possibility with the FSA, who would have to agree to the rule change that would be needed.

Eight of the 164 complaints I investigated were complaints from firms. Seven of these firms were independent financial advisers and one was a firm of insurance brokers. In two of these cases I upheld the complaint. Delay and other forms of administrative shortcomings continue to be the reasons most commonly cited by consumers who complain to me about the ombudsman service - with claims of bias or unfair treatment coming next, but some way behind. The financial services products that featured most frequently during the year in the complaints referred to me were mortgage endowments and investments (including pensions). Banking matters came next - followed by insurance policies of one kind or another.

Again this year, I must emphasise that the cases I see are a tiny fraction of the ombudsman service's overall caseload. The matters I have drawn attention to should not, therefore, be regarded as a basis for drawing conclusions about how they might apply more generally.

Michael Barnes signature

Michael Barnes CBE May 2005

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