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annual review 2006/07

1 April 2006 to 31 March 2007

chairman's foreword

In my foreword to the annual review last year, I wrote that the Financial Ombudsman Service appeared to be at a pivotal point in its history. After five consecutive years in which the volume of disputes referred to the ombudsman service had increased substantially year-on-year - with the number of new complaints rising in some years by more than half - the indications were that complaints were finally starting to level off.

This has now indeed happened. For the first time, the overall volume of new complaints reduced during the year - by 16%. This figure still means that our overall workload is three times the size it was when the Financial Ombudsman Service was first set up. But seeing a peak finally emerge on a chart that has previously shown only a steep line pointing upwards is a significant and welcome event.

The challenge for us now is to take stock of a complaints landscape with changing and uncertain features. It remains difficult to predict with accuracy the nature of the terrain ahead. And experience has taught us that predicting with any accuracy the future volumes of - and trends in - complaints is more an art than an exact science. In planning our work we have to continue to be flexible in response to a changing environment.

It was the seismic effect of mortgage endowment complaints that created the mountain we have climbed in recent years - a mountain that has cast a deep shadow across the landscape for both the ombudsman service and the financial services sector more generally. In the last few years, the ombudsman service has now handled well over a quarter of a million mortgage endowment disputes - probably around one in eight of such complaints dealt with by the financial services industry itself.

However, from the twin peaks of 69,700 and 69,150 mortgage endowment cases in the financial years 2004/05 and 2005/06 respectively, the number of endowment cases referred to the ombudsman service has this year fallen by a third to 46,100. It is this decrease that lies behind the overall reduction in new cases handled by the ombudsman service this year.

We have, of course, been anticipating this fall in mortgage endowment cases for a number of years. In previous annual reviews we have highlighted the impact that "time barring" would be likely to have on complaints numbers, as consumers ran out of time to bring mortgage endowment disputes to us. The challenge has been to predict exactly when and how the impact of this would make itself felt on our workload.

The falling number of mortgage endowment complaints is only one part of our landscape. In other areas we are seeing significant increases in activity. Banking-related disputes, for example, have risen by almost 50% over the year - fuelled largely by consumer dissatisfaction with the level of bank charges. Media and internet campaigns have resulted in up to 3,000 enquiries a day to our consumer helpline on this subject alone.

There has also been significant media coverage of loan protection insurance, with a number of bodies launching inquiries into how this insurance product is sold and the way the market works. This attention has doubtless contributed to the 39% increase in the number of disputes referred to us this year about loan protection. Some commentators are suggesting that it is only the tip of the iceberg - and that we should stand ready to see much larger volumes of complaints about this product in future.

Consumer credit is another area where we expect to see an increase in our workload over coming years. Already we cover around 70% of the consumer-credit market by value - mortgages and loans provided by banks and building societies have been covered by the ombudsman for many years now. Over the year, however, we put a significant amount of resource into preparations for the statutory extension of our consumer-credit remit. Under the new Consumer Credit Act, from from 6 April 2007 our remit has included the consumer-credit activities of some 80,000 businesses who have a standard consumer-credit licence. There are more details in a later section of this report about the work we have done in preparation for this important widening of our service.

6 April 2007 also marked the extension of our remit to cover complaints about home-reversion schemes, home-purchase products and self-invested personal pensions (SIPPs). This broadening of our remit is an integral part of the new regulatory framework for these products - with the Financial Services Authority (FSA) taking on regulatory responsibilities for these areas from that date.

These changes and developments mean that the environment ahead is likely to expose us to some degree of unpredictability and uncertainty. This is nothing new. In our relatively short existence, we have become accustomed to working in uncharted terrain so far as complaints volumes and trends are concerned.

As in previous years, we have published in full - as part of this annual review - the latest report by the independent assessor, Michael Barnes. The independent assessor's role is to investigate complaints from businesses and consumers about standards of service provided by the Financial Ombudsman Service. Like all organisations - including the financial businesses we cover - we recognise that we can and do get things wrong. It's important that we have a formal redress-mechanism in place for people unhappy with our service - and we want to learn from mistakes we make. This is why the independent assessor reports directly to me and my board colleagues, as part of the framework we have in place for feedback and scrutiny on all aspects of our performance. I am most grateful to Michael Barnes for carrying out his duties as independent assessor with such continued vigour and commitment.

Sir Christopher Kelly KCB
May 2007

image of Sir Chris Kelly

This annual review is published in accordance with paragraph 7 of schedule 17 of the Financial Services and Markets Act 2000.