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corporate plan and 2007/08 budget

January 2007

key issues for 2007/08 and beyond

The Financial Ombudsman Service's overall priority for 2007/08 and beyond is to continue to deliver an efficient and effective service which retains the confidence of consumers, financial services businesses and all our other stakeholders in the essential role we fulfil. This chapter describes some important factors we need to take into account in planning that.

our roles

Our key roles are:

  • resolving complaints - in a way that is impartial, fair, accessible, timely, informal and efficient and is free to consumers - and awarding fair redress where appropriate;
  • encouraging the resolution of complaints before they reach the ombudsman service, by providing clear information about our approach; and
  • encouraging the elimination of the sources of financial complaints, by providing clear information about the lessons that can be learned from our work.

We are part of the statutory arrangements designed to underpin public confidence in financial services. As an alternative to the civil courts, we also form part of the arrangements for the administration of justice.

a joined-up service

The background to our planning includes government policy on extending out-of-court redress schemes and public-service delivery.

As the government has extended the range of FSA-regulated activities, the FSA has correspondingly extended our compulsory jurisdiction over the businesses it regulates. As a result, the number of FSA-regulated businesses we cover has grown to around 21,000 from around 8,000 when the Financial Ombudsman Service was set up. Further extensions to FSA regulation, and to our compulsory jurisdiction, will cover FSA-regulated businesses that manage or administer personal pensions and also those offering home-reversion plans and Islamic home-purchase plans.

In 2005 Parliament legislated to enable National Savings & Investments to join our voluntary jurisdiction, in place of the previous stand-alone arrangements. And the Consumer Credit Act 2006 gives us a new consumer credit jurisdiction covering around 100,000 OFT-licensed consumer credit businesses. This new jurisdiction will open for most consumer credit activities on 6 April 2007. This will extend the availability of out-of-court redress to new areas - involving new kinds of issues and a different range of consumers.

A range of government policies on public service delivery may have implications for the Financial Ombudsman Service. The Hampton Review, for example, strongly encourages public service providers to join together to deliver better services, so that economies of scale can be generated and customers can benefit from fewer and clearer points of entry for a service. And the wider agendas for public-service reform and Modernising Government place emphasis on increasing value for money and the sharing of common services.

Against that background, the government's proposals for further statutory redress schemes based on the Financial Ombudsman Service model - as well as its encouragement for industry to develop other voluntary schemes - result in a greater focus on existing providers of redress schemes. We will therefore need to continue engaging constructively with those proposing and developing such schemes, to assist in the provision of independent redress.

mortgage endowment cases

As outlined in chapter 1 of this document, time-limit rules mean that the present high level of mortgage endowment cases should decline, although the timing and scale of the decline is currently uncertain. One particular uncertainty is whether there will just be a steady decline, or whether the decline will be preceded by a 'spike' of new cases, as awareness of the time limits prompts consumers, and those advising them, into action. The ombudsman service needs to be ready to deal with both eventualities.

The decline in the number of incoming mortgage endowment cases which need investigation is likely to be accompanied by a significant rise in the number of such cases where, according to the financial services business concerned, the case is out-of-time under the relevant time-limit rules made by the FSA. This is a further contingency for which we must prepare.

Where it is apparent from the outset that we cannot consider the merits of the case because of a time bar, the financial services business will not generally have to pay a case fee. But our experience indicates that, even in apparently straightforward cases, it can require considerable work before consumers accept that their claim is out-of-time and that we do not have power to look at the merits of their case. So we face the prospect of carrying out a significant amount of work for which we will not always receive case fees. This will potentially affect our cost base, and our unit cost.

In view of the surge in mortgage endowment cases, and the fact that any loss does not crystallise until the future date when the policy matures, in January 2004 we announced different service standards for mortgage endowment cases - coupled with arrangements to prioritise certain categories of cases. The continuing high volume of mortgage endowment cases means that different service levels will be necessary for a time. But, subject to the considerable uncertainty about the volume of new cases, our objective is to significantly improve the timeliness of mortgage endowment cases during the period.

claims-management companies

Consumer complaints are sometimes encouraged by those with a financial interest, such as claims-management companies. These companies have made a considerable impact in the area of mortgage endowment complaints.

Now that the number of new mortgage endowment cases appears to have peaked, we are increasingly seeing claims-management companies threatening legal challenges to the time limits set by the FSA for bringing complaints - and to how these limits are applied. At the same time, many of these companies are also seeking other financial areas in which to develop complaints business.

Perceived abuses by some claims-management companies led Parliament to legislate for the regulation of this sector - which in due course should have an effect on how these companies operate. But they are likely to remain a factor in the inflow of new cases.

economic factors

Relative stability in the economy and in the stock market has meant comparative stability in the number of investment-related cases we have received, apart from complaints about mortgage endowments.

Changes in the economic climate - such as the contingencies considered by the FSA's financial risk outlook - may affect the behaviour of consumers and financial services businesses, and so affect the scale and nature of our incoming work.

An economic upturn may, for example, encourage consumers to feel confident and borrow more, while a downturn - whether generally, or in an area such as house prices - may affect their safety margins and their propensity to complain.

Economic factors affect how businesses providing financial services handle complaints, and may also lead them to amalgamate, reorganise or go out of business.

The disruption associated with some amalgamations and reorganisations can stimulate complaints. When financial services businesses cease trading their customers may have access to the Financial Services Compensation Scheme, but the ombudsman service is often left with irrecoverable debts for unpaid case fees.

The Financial Ombudsman Service needs to ensure it has a sustainable business model that is capable of handling volatilities in case numbers and types.

resource issues

A number of issues have the potential to affect the cost of providing our service. These include:

  • staff resources: Overall staff numbers are relatively stable after five years of constant increase. So a smaller proportion of our staff is new and at the bottom of the relevant pay scale. In combination with a turnover rate that is still relatively low, and the marginal effect on pension costs of new age-discrimination legislation, this means that staff unit-costs are likely to increase in real terms.
  • internal capability: Likely future changes in the balance between the different types of complaint mean that we need to continue to focus on developing our staff to be broadly-skilled and flexible in the types of case they have the capability to handle. This means there is a need to retain existing knowledge and expertise through peaks and troughs in workload. Coupled with this is the need for even greater investment in the professional development and training required to share knowledge and expertise.
  • infrastructure: We have expanded within our existing building on terms that provide reasonable flexibility should we need to contract. Our existing IT and telephony systems were 'leading-edge' and have enabled us to expand and adapt. But, like all systems, they have a limited life. We need to invest in their replacement if we are to deliver a service that continues to meet rising expectations.

Such factors have the potential to affect significantly both our cost base and the value-for-money of our service. Our corporate plan needs to include a range of initiatives that will take these factors into account while also reducing other costs where practicable.

image of plan and budget 2007

For printed copies of this or any of our publications, email Aniko Rostagni in our communications team or phone her on 020 7964 0092.