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annual review 2011/2012

1 April 2011 to 31 March 2012

other work we have done

To support our work in settling disputes between consumers and financial businesses, we feed back the lessons learned from our work to a wide range of stakeholders and customers.

This section highlights some of these stakeholder-engagement activities. There is more information about this work in our corporate plan, published in January each year.

working with the FSA and OFT

We have regular contact with both the Financial Services Authority (FSA), as the regulator of financial services, and the Office of Fair Trading (OFT), as the regulator of consumer credit, on matters which are relevant to our role and responsibilities. During the year we have worked particularly closely with the regulators through the new joint "co-ordination committee". This has helped to identify emerging issues that affect large numbers of consumers or businesses - and where regulatory action may be needed.

We also worked with the FSA as they finalised rules to improve businesses' complaints-handling processes. This included raising the maximum amount of compensation that the ombudsman can tell a business to pay - from £100,000 to £150,000 - and preparing for the abolition of the "two stage" complaints-handling process which the FSA had found was inherently prone to abuse by some financial businesses.

extensions to our remit

We worked closely during the year with HM Treasury, the FSA and others on a number of changes or extensions to our remit. This included:

  • Preparing to bring the regulation of credit unions in Northern Ireland under the FSA, which in turn brought these credit unions within our remit from 31 March 2012.
  • Changing our rules to allow us to consider more complaints where the consumer says they have been a victim of identity theft.
  • Working with the FSA to implement the second Electronic Money Directive, which has brought more financial businesses within our remit.
  • Working with the FSA to implement the European Directive that updates the arrangements for "UCITS" (undertakings for collective investment in transferable securities). This created, for the first time, the possibility of a fund authorised in one EU member state being managed by a fund manager authorised in another member state - which in turn meant that we would cover complaints about some businesses operating outside the United Kingdom.
  • Working with the FSA on changes to their regulatory powers in relation to "sale and rent-back" and to situations where lenders sell on their mortgage business - both of which will bring a wider range of businesses under our remit.
  • Working with the FSA, the Solicitors Regulation Authority and others to prepare for the launch of "alternative business structures", which allow providers of legal services to provide other services - such as financial services.

regulatory reform

We have continued to work closely with HM Treasury and the FSA on issues arising from the reform of financial regulation, which is one of the Government's key priorities. The Government's proposals for reform were set out in its consultation paper, A new approach to financial regulation: the blueprint for reform, and confirmed in the Financial Services Bill which was introduced into Parliament in January 2012.

These proposals confirmed the government's intention that the ombudsman service would remain independent, with a role clearly distinct from the regulator. We will continue to work closely with HM Treasury, the FSA and the proposed Financial Conduct Authority (FCA) on the implementation of these proposals.

national and international role

We continue to maintain close relations with a number of government departments that have a particular interest in what we do - including, in particular, HM Treasury, the Department for Business, Innovation and Skills (BIS), and the Ministry of Justice.

We have worked closely with the Claims Management Regulator, part of the Ministry of Justice, and have reported to them trends and concerns about complaints received from claims-management companies. We continue to take part in their Regulatory Consultative Group.

We have also had dialogue with a number of other government departments - such as with the Department of Work and Pensions (DWP) on pension redress issues, and with the Department of Energy and Climate Change on redress in relation to the proposed "Green Deal".

At an international level, we have continued to work with the European Commission on improving the availability of cross-border "alternative dispute resolution", primarily through FIN-NET, the network of European financial dispute-resolution services. We have also worked with the Commission and the other EU institutions on proposals for a directive on "alternative dispute resolution" and for a regulation on "online dispute resolution".

freedom of information

Our many stakeholders - ranging from consumers deciding whether to pursue complaints, to trade associations carrying out policy research - look to the ombudsman service to provide the information they need. And we aim to be as open and helpful as we can in making information freely available.

The Ministry of Justice extended the Freedom of Information Act to cover the ombudsman service from November 2011. Since then, we have received around two or three formal requests each week for information under the Act.

Many of the facts and figures we are regularly asked for are already publicly available through our "publication scheme".

publishing decisions

In September 2011 we published a discussion paper responding to the Government's proposals to require us to publish the final decisions of our ombudsmen. Our discussion paper set out our initial thoughts on how we might publish decisions in practice - so that stakeholders' responses to these proposals could inform the subsequent debates in Parliament.

Our stakeholders were largely supportive of publishing ombudsman decisions. They noted that increased transparency about our approach could help financial businesses and consumers alike - and prevent future complaints - while also improving our own accountability.

We are therefore continuing our dialogue with businesses and consumer groups while Parliament debates the issue, so that - whatever Parliament decides - we will be able to implement its decision quickly and effectively.

external review

Our board asked the National Audit Office (NAO) to carry out the latest of our regular external reviews - this time with a focus on our efficiency. The NAO published its report in January 2012. It concluded that:

  • Having to cope with volatile demand is a key test for the ombudsman service.
  • With more than half of the ombudsman service's workload over the last decade relating to just three issues - mortgage endowments, bank and credit-card charges, and PPI - the large surges of so-called "mass claims", and the way in which financial businesses deal with them, give rise to major operational challenges.
  • The cost of settling disputes at the ombudsman service has risen by 214% in real terms since 2001 - but the complaints workload it has handled over this period has increased by 376%.
  • The programme of changes introduced in 2010 to modernise our operational processes and IT (including the "e-enablement" project) has already begun to realise benefits - and while some aspects of project management should be strengthened, the programme is being managed well with good progress made to date.

The NAO's report also made five specific recommendations - including more detailed work to assess how the current case-fee charging-structure affects the service's cash-flow and funding, and quantifying more precisely the impact of a range of variable factors on the service's "unit cost". 

We are following up on each of these recommendations - such as, for example, by reviewing our case-fee structure (see below).

review of our case-fee structure

In January 2012 we published a consultation paper on changes to our case-fee structure - to apply from April 2013. Although our current case-fee structure has served the ombudsman service and case fee payers well - as it is simple to understand and reasonably straightforward to operate - it has brought increasing challenges too. 

The case-fee structure has, in particular, made it difficult to handle the cost pressures and financial risks brought about by the increasingly volatile demand for our service. It does not recognise that we now cover a much wider and more diverse group of financial businesses, ranging from some of the largest businesses in the UK to many of the smallest. 

The consultation paper set out a proposal for a new approach - designed to better reflect the diverse needs and issues of case-fee payers, while ensuring continuing adequate funding for our work in future years. 

The two key elements of our proposals are:

  • We should charge the very largest financial groups on a "group account" basis - focusing less on charges for individual cases and more on a broader assessment of the overall proportion of our costs attributable to each major group. 
  • We should ensure that smaller businesses generally pay no case fees at all - by increasing the number of "free" cases from 3 to 25, which would have a more proportionate impact on these businesses.

Taking into account the feedback we receive, we will consult again later in 2012 on the detail of the proposals to take effect from April 2013.

engaging with stakeholders

We carry out a wide range of activities aimed at sharing our experience and knowledge with the outside world. Over the year these external-liaison and outreach activities have included:

  • Answering 19,281 enquiries to our technical advice desk - our dedicated service for professionals handling complaints in the financial services sector and the consumer-advice world.
  • Responding to 624 parliamentary enquiries (including 46 ministerial questions) - and taking part in a range of events for MPs and their constituency caseworkers, including drop-in "surgeries" and seminars on motor finance, debt, and financial problems faced by older people.
  • Organising visits, meetings and training for businesses we cover - including a relationship-management programme involving the 16 financial services groups that together accounted for the majority of complaints referred to the ombudsman service during the year.
  • Running our industry steering-group and our industry panel; hosting our smaller-businesses forum; and holding workshops and seminars around the UK for financial businesses and claims-management companies on a range of topical complaints-related issues.
  • Holding 13 regional training-days for community and advice workers - from Belfast to Ipswich, Southampton to Glasgow - to share our complaints-handling skills with front-line problem-solvers in the community; and hosting our quarterly consumer-liaison forum for representatives from consumer groups.
  • Taking our exhibition stand to key consumer events, including the 50+Show, the Gadget Show Live, Belfast's Balmoral agricultural show and BBC Rip off Britain's roadshow at Manchester Trafford Centre.
  • Speaking at seminars and conferences hosted by organisations ranging from the National Association of Student Money Advisers (NASMA) to the Insurance Institute of Aberdeen.
  • Targeting specific audiences - those less likely to use, or be aware of, the ombudsman service - including advertising on buses in the Midlands and Northern Ireland and "click-throughs" direct to our website from the One India online portal.
  • Adding or updating 1,690 pages of our website - including 162 news updates and increased video content.
  • Publishing nine issues of our newsletter, ombudsman news - including our 100th issue, guest-edited by four leading personal-finance commentators; and more information on our online technical resource - covering our approach to complaints involving, among other things, storm damage, legal expenses insurance, ISA allowances and dormant accounts.
  • Answering media questions and providing information for publications ranging from Reader's Digest to Your Cat - and taking part in over 75 broadcasts, from Radio 4 Today to Borders Community Radio.

During the year we met front-line community workers and consumer advisers at events we hosted across the UK.

  • Belfast
  • Birmingham
  • Bristol
  • Cambridge
  • Cardiff
  • Chester
  • Glasgow
  • Ipswich
  • Leeds
  • London
  • Manchester
  • Newcastle upon Tyne
  • Southampton

94% of the consumer representatives who took part in one of these events said that it had given them a better understanding of financial problems and the role of the ombudsman - which would change the way they approached complaints in future.