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annual review 2007/08

1 April 2007 to 31 March 2008

chief ombudsman's report

In last year's annual review I noted the importance of the ombudsman service being accessible to all consumers, not just the determined middle-classes. At that time we were looking at whether our structure, style and process might inhibit consumers from accessing our service - and what we could do about it.

Not long after last year's annual review was published, our board decided that accessibility was important enough to justify commissioning an independent review of our service. Lord Hunt of Wirral - a distinguished financial services lawyer and former cabinet minister - was asked to carry out the review. It was entirely fitting - some ten years after the concept of a single statutory ombudsman scheme for the financial services sector had been first raised - to focus on the accessibility and transparency of our work. The review's aim was to ensure that in, say, three years' time, our service would not look out of date or behind the times.

This was the first time anyone had really examined the financial ombudsman model since the establishment of the original voluntary schemes - in insurance and banking - in the early 1980s. Even at the time the Financial Ombudsman Service was created as the single statutory scheme, the approach of the existing financial ombudsmen to accessibility and transparency was taken as read.

On the main structural aspects of our operations - our "fair and reasonable" approach to resolving individual disputes; an internal rather than external appeal process; file-based analysis rather than face-to-face hearings; and no charge for consumers - Lord Hunt has concluded that the model we follow is right and fit for purpose. But on accessibility and transparency he has given us an extensive agenda which, if implemented in full, would clearly set us well ahead as a public service organisation.

In the early days of financial ombudsman schemes, it was generally assumed that consumers would only need to know about ombudsmen if they had a complaint that a business itself could not settle. Little effort was devoted to raising awareness of ombudsman schemes more generally among the wider public.

Businesses are now required under the rules to tell customers about the ombudsman at the start of any contract - and again if an actual dispute arises. But fewer than one in five consumers who pursued complaints through our service this year say they learned about us from the business they dealt with. So it is clearly important that ombudsman schemes make it as straightforward as possible for consumers to be able to access their services.

In approaching the accessibility agenda, we may need to research the costs and benefits of Lord Hunt's recommendations more closely than he was able or required to do. We will keep closely in touch with our stakeholders in the consumer and industry sectors. A research, experimentation and piloting programme, followed by assessment and phased introduction, seems the most practical way to take forward the proposals.

But what we now have is a clear vision of how the ombudsman service might look in three years' time - a service that is positioned somewhat differently from now, with a more active community agenda, and with more resources committed to ensuring that consumers know about our service and are able to make full use of it. Our commitment to even-handedness between consumers and businesses, when we make decisions in individual disputes, is fundamental to our approach. So we will, of course, remain focused on the fair resolution of the complaints that are referred to us by consumers. But it is clear that we will need to devote greater resource in future on awareness-raising, access and outreach activities.

The transparency agenda - separate from the accessibility challenge - is driven from a rather different starting point. Nor are resources alone necessarily an obstacle to change in this area. There are some considerable issues of principle at stake. Neither the Financial Ombudsman Service, nor any other UK private-sector ombudsman scheme, currently publishes data about complaints volumes and uphold rates relating to named individual businesses. Nor is this necessarily to be a feature of the new ombudsman schemes in the energy, property and postal services sectors. The Office of Fair Trading (OFT) has laid down criteria for the approval of these new complaints-handling schemes, but openness about complaint outcomes is not a requirement.

Lord Hunt has been very clear about the principle behind his recommendations on greater transparency. He points out in his report that the availability of accurate information for consumers helps to make markets as a whole work more effectively. And he concludes that information about the complaints-handling performance of businesses is a relevant factor that consumers may wish to take into account when making a purchasing decision. Our board has accepted the principle of greater openness in this area.

So now the rather more difficult task must begin of seeing how this should be implemented in practice. We will be considering with industry and consumer bodies the options for exactly how our data on complaints volumes and uphold rates might be published. And in this annual review we are providing for the first time more detailed comparative data about the outcome of cases (uphold rates) across the different financial products and sectors that we cover.

Experience in other commercial sectors where comparative tables have been introduced suggests that - at least in the early days - we should expect some unpredictability on the part of businesses in their complaints-handling, as they seek to re-position themselves in the tables. This could result in further swings and changes in the mix of our incoming caseload in future.

The issue that may be more difficult to handle is the potential effect that publishing data on individual businesses' complaints performance might have - operationally - on our approach to the early resolution of disputes. Last year more than nine out of ten cases were resolved by our adjudicators, without the need for formal ombudsman decisions. The framework of privacy within which we currently operate means that businesses are often willing to settle complaints on the basis of an informal view from us - without requiring an actual decision by an ombudsman.

But it may become more difficult for our adjudicators to reach informal resolution of complaints which, in their view, should result in redress for the consumer, if the business fears the impact of such outcomes in a published table.

In another strand of his report, Lord Hunt recommends our putting into the public domain a digest of our approach to those complaints we see most frequently. This would include publishing appropriate decisions, to show how we apply the principles developed in these types of cases. Again, successful implementation of this proposal would need careful thought. We had been concerned that moves in this direction might be misrepresented as producing a further set of regulation - just at a time when the FSA is in the process of reducing its rulebook as part of its more principles-based approach. But Lord Hunt has given us and the industry a clear message here - that the benefits of publication more than outweigh any misplaced concerns that could arise.

These, and the many other recommendations from Lord Hunt on accessibility and transparency, add up to a bold agenda for change - one that will take time to implement, but which I believe will deliver an ombudsman service fit for the changing world we see ahead. The agenda also builds on the solid foundations we already have in place - with our access and outreach programmes, and our stakeholder-engagement with those who use or have an interest in our work - and which we describe in more detail on the following pages of this annual review.

Walter Merricks CBE
May 2008

image: Walter Merricks, chief ombudsman

photo: Walter Merricks CBE

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