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ombudsman news

issue 94

June / July 2011

ombudsman focus: lawyering up

Caroline Wayman, a qualified barrister, was appointed to the ombudsman service's executive team earlier this year as principal ombudsman and legal director. She has over ten years' experience at the ombudsman service, including running the unit handling a quarter of a million mortgage endowment complaints, as well as leading the ombudsman's response to the recent PPI judicial review.

ombudsman focus catches up with Caroline to find out what life is like as the ombudsman's no.1 'legal beagle'.

When you started off studying law as a student, did you think you might end up in a courtroom challenge involving the major UK banks?

If you're studying law, I think you always imagine you'll one day be involved in the kind of courtroom action that will make a real difference. I remember being particularly inspired as a student by the ground-breaking legal case that single mother, Erin Brockovich, had just launched. It was against an American power company accused of polluting a city's water supply. Cases like that - with all their drama, human interest (and of course, movie potential) - showed that the law needn't be dry and academic. Issues fought out in court could alter people's lives and change society.

Back then I'm not sure I even knew what payment protection insurance was. And I probably wouldn't have thought the legal position on complaints-handling rules was changing the world, exactly! But the recent judicial review on payment protection insurance (PPI) was certainly a significant legal action, involving serious heavyweights from the legal world on all sides. And I found being involved was every bit as stimulating, challenging and absorbing as I always hoped the law would be!

Your job title is principal ombudsman and legal director. Do you think of yourself first and foremost as an ombudsman or a lawyer?

My instinctive answer is both. The lawyer in me has needed to come to the fore recently. Much of my time and energy has been focused on the legal action brought against us in the PPI-related judicial review. But being an ombudsman is fundamentally all about being fair and reasonable to both sides in each dispute. And that's really at the very heart of who I am, where my values lie, and what I do here at the ombudsman service.

You've been with the ombudsman for over ten years now. How has your work changed over that period?

After qualifying as a barrister, I worked in the insurance industry for a few years. I then joined the Insurance Ombudsman Bureau (IOB), one of the predecessor ombudsman schemes that merged to form the Financial Ombudsman Service a decade ago.

The IOB introduced me to the world of general-insurance disputes - and to the ombudsman's 'rule of thumb' on issues such as 'matching sets' in household insurance, which all these years later still underpins our general approach to complaints about these issues. Now that's consistency - in a world that in many other ways has changed significantly!

When I transferred across to the new Financial Ombudsman Service, my first project was to look at new ways of working involving mediation - getting both sides to agree to recommendations or settlements as early as possible, and with even less formality than would usually apply. This included trialling greater use of the phone to contact the parties to a complaint - rather than always writing lengthy letters. This may now sound like standard procedure but it was pretty radical at the time - the Twitter approach of its day!

Then between 2004 and 2007 I ran the unit here dealing with mortgage endowment complaints. They were by far the most-complained about financial product during those years. At their peak, we were receiving up to 1,500 mortgage endowment cases a week. Though nowhere near as large as the volumes of PPI cases we are now seeing, that marked a very significant increase in our workload. It meant we had to introduce very different ways of working, to reflect the ramped-up scale of our operations.

You learn a lot from experiences like this. The most important thing is to be able to identify what the key issues really are - so you can focus on what needs to happen to improve things. That's definitely where my skills as a barrister have helped - seeing the bigger picture while at the same time zooming in on vital detail.

What does your work as a principal ombudsman involve?

It's an important part of this role to oversee how we manage the consistency and professional leadership of our statutory panel of ombudsmen. The panel now includes over 80 ombudsmen and - in all - they will be making final decisions on over 25,000 cases this year. All of our ombudsmen are individual decision makers - responsible in law for the decision they make on each case. But it's vital that the overall approach they take to particular types of complaints is clear and consistent.

That's why we have five managing ombudsmen, each leading the day-to-day work of teams of ombudsmen who cover complaints in particular subject areas (for example, health insurance). We also have two lead ombudsmen, Caroline Mitchell and Jane Hingston, who head-up casework policy for, respectively, general insurance and investment, and banking, credit and mortgages. I co-ordinate the work of the ombudsman panel as a whole, working closely with our chief ombudsman, Natalie Ceeney, and with Tony Boorman (principal ombudsman and decisions director).

Are all the ombudsmen legally qualified - and if not, should they be?

The objectivity and analytical skills that lawyers bring can provide a really good grounding for being an ombudsman - and we have a number of ombudsmen who are legally qualified. But we also have people from a range of other professional backgrounds. This includes ombudsmen who have worked in financial services - and so bring experience and knowledge of the practical realities of the industry, as well as strong technical expertise. We also have ombudsmen who have worked with regulators and other complaints-handling bodies.

Ombudsmen are appointed by our non-executive board and they need to meet exacting criteria, which we test through a rigorous recruitment exercise. The key to success as an ombudsman is the ability to carefully weigh up evidence, to get to grips with difficult (and often technical) issues, and to reach fair and reasonable decisions, objectively and impartially.

As a principal ombudsman, do you make decisions on individual cases?

Yes, sometimes. Typically where there's a decision of particular significance - or simply where I want to keep my hand in. But generally, as I've said, my role is to oversee the work of all the ombudsmen - to help ensure consistency and professionalism. The decision of an ombudsman in any individual case is final - there can't then be an appeal to another ombudsman. So my role is not to handle appeals on individual decisions that people don't like!

You've talked about your work as an ombudsman but what about the other part of your role - as the legal director?

As legal director I lead our own in-house legal team and advise the executive team and our board on legal issues. As a dispute-resolution organisation issuing hundreds of decisions each week on individual cases, it's probably not surprising that at any one time we'll be dealing with several judicial reviews and other court actions against us. The qualified solicitors in our legal team handle these legal challenges and proceedings for us.

So what - in a nutshell - does the Court's recent judgment on the PPI judicial review actually mean for the ombudsman service?

Well, the first thing to say is that the court found that the approach the ombudsman had been taking on PPI complaints was correct. The judgment was a strong endorsement of some really important issues - such as 'principles-based regulation' and the 'fair and reasonable' jurisdiction of the ombudsman.

Some have said that the case was about 'retrospective' regulation - but that's not correct. The Court found that the high-level FSA 'principles' are always applicable - and they don't stop applying just because there are also detailed rules in place. That's a really important point. If that had been found not to be the case, the regulator would have to write down a rule for every possible scenario and circumstance. Clearly that would not be appropriate.

As far as the ombudsman service is concerned, the really key part of the judgment was an endorsement of previous decisions (including by the Court of Appeal) about the role and position of the ombudsman in deciding cases. It's clear that the ombudsman service is required to decide cases on the basis of what is fair and reasonable, having regard to a number of things including the law and relevant regulatory rules.

In fact, in making decisions we generally start with the basic legal principles such as 'causation' and 'reasonable foreseeability'. So the law is a fundamental part of our decision making. It's simply never the case that we disregard it. But we are required to take account of all the other relevant factors as well, when we decide what's fair and reasonable in any particular case.

With the banks' legal challenge on payment protection insurance now over, are there still other legal issues for you to decide on PPI - or are the issues now operational rather than legal?

There's still a huge amount of work to do on PPI complaints. While they were waiting for the outcome of the judicial review, a number of major banks and other financial businesses had stopped co-operating fully with us. That made it impossible for us to progress most PPI complaints as quickly as we would have liked. As a result of the publicity caused by the court case, financial businesses received record high volumes of PPI cases - and those volumes increased again following the ruling in April 2011.

Of course, the end of the legal action does not mean that everyone bringing a PPI complaint will win. The legal action did not decide individual complaints. It decided that the general approach we have taken to handling PPI complaints is correct. We now still need to look carefully at the particular circumstances of each individual complaint, to see whether the policy in question was mis-sold.

Given the huge volumes of cases involved, this isn't something - unfortunately - that can happen overnight. But we're working closely with the Financial Services Authority (FSA), to ensure financial businesses deal with their PPI complaints in as co-ordinated and efficient a way as possible. And we welcomed the FSA's recent announcement on the clear timetable it has set banks, to sort out the large numbers of their complaints that have built up during the legal challenge.

Do you think the PPI problem has been caused by claims-management companies?

The 'PPI problem' stems from very large numbers of PPI policies being sold inappropriately by financial businesses - so claims-management companies didn't create the problem. But they've certainly exploited it - and this has had a major impact on PPI complaints.

Faced with the complex complaints procedures that some financial businesses have made their customers go through, I can see why using a claims-management company could seem very attractive and reassuring to consumers who are just starting to think about making a complaint. This has made claims-management companies very effective in galvanising people to make a complaint who might otherwise not have got the compensation they were entitled to.

But we've also seen cases where claims-management companies have failed pretty dismally in their job of representing consumers professionally - or where they have provided a service of very doubtful value. Practices such as 'cold-calling' consumers, and pursuing PPI complaints where a PPI policy was never even sold (as in case study 94/2), reflect poorly on all claims-management companies. The more reputable ones clearly recognise that stronger regulation would help to drive higher standards and improve the sector's standing.

Shouldn't claims-management companies be regulated - with access to the ombudsman for complaints about them?

Claims-management companies are already regulated by an arm of the Ministry of Justice. We don't have powers under the law to handle complaints about them. But where we see poor behaviour by claims-management companies, we report it to the regulator - just as we do when we see poor behaviour by a financial services business.

And as I mentioned earlier, many people are now calling for stronger regulation of claims-management companies - with requirements on them to provide a level of professionalism comparable with other regulated sectors.

As claims-management companies are responsible for so much of the ombudsman service's workload, surely they should have to contribute to your costs?

In our annual review published in May, we reported that 45% of the total number of complaints we received last year were brought on behalf of consumers by claims-management companies. In a further 5% of cases, consumers paid for professionals such as lawyers and accountants to bring complaints for them - and in another 5% of cases, complaints were made on behalf of consumers by friends, family and consumer representatives acting for free.

There's a vast difference in the personal circumstances involved in these cases. And it's ultimately a matter of individual choice for each consumer whether they want someone else to represent them in bringing their complaint - either to us or, in the first instance, to the financial business concerned. As the rules stand, we can't charge those who represent consumers. And I can see there could be unintended consequences for consumers, if that were to happen.

However, we've always made it very clear that consumers wanting to complain can do it themselves, that we don't see claims-management companies adding value, and that you're no more likely to win your case going through a claims company than if you complain directly.

With the PPI judicial review behind you, how long before you see the inside of a courtroom again?

Not very long I suspect! As I mentioned earlier, we are - by definition - an organisation that makes decisions. In fact, we make tens of thousands of decisions each year - and each one can have a real impact on the people involved. This makes legal challenges, and in particular judicial review, a pretty inevitable part of our work.

But the fact that we can be judicially reviewed by the courts is an important safeguard for organisations like ours. It means that the courts can - and do - scrutinise the decisions we make, to ensure the approach we have taken is in line with principles of administrative justice.

The ombudsman service very actively promotes itself as being an alternative to the courts. So isn't it a bit odd that you have such an active legal team?

Much of the work of our legal team involves dealing with litigation and threats of litigation. But the team also proactively supports our ombudsmen, in ensuring that their decisions are robust - and made in accordance with the statutory framework in which we operate.

What's your role on the executive team - and how do you interact with the board?

As a member of the ombudsman service's executive team, I'm part of the organisation's strategic leadership. Our non-executive board works with us on the strategy for the ombudsman service and is responsible for ensuring we fulfil our organisational objectives - not just for today, but in planning for the future.

If you weren't working at the ombudsman service, what would you be doing?

I'd probably be working in private practice as a barrister. But in all honesty I really wouldn't want to swap the job I do here at the ombudsman service for any other. I strongly believe we play a really important role in the world of administrative justice. And as an ombudsman, I'm very proud to see the positive difference we can make to increasing people's confidence in financial services.

image: Caroline Wayman, principal ombudsman and legal director
image: Caroline Wayman, principal ombudsman and legal director

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.