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corporate plan and 2008/09 budget

January 2008


The availability of the Financial Ombudsman Service to provide fair redress for individual consumers if things go wrong is one of the key components underpinning consumer confidence in financial services.

Events in the banking sector in late 2007 showed just how important the maintenance of consumer confidence is to the financial health of the country as a whole, and to the UK's role as the world-leading centre for financial services.

Since 2001, when the Financial Ombudsman Service was established by law as a unified service for resolving disputes between consumers and businesses providing financial services, there has been a continual expansion in our role.

The ombudsman service started out by bringing together the existing dispute-resolution schemes relating to complaints against:

  • banks;
  • building societies;
  • insurance companies;
  • investment providers; and
  • investment intermediaries.

Our remit has been progressively extended to cover complaints against:

  • credit unions;
  • electronic money institutions;
  • all mortgage lenders;
  • mortgage intermediaries;
  • insurance intermediaries;
  • National Savings & Investments;
  • managers/administrators of personal pensions;
  • providers of home-reversion and home-purchase plans; and
  • consumer credit businesses with standard licences from the Office of Fair Trading (OFT).

The ombudsman service has replaced eleven previous stand-alone complaints handling schemes in total, as well as extending independent dispute resolution to new areas. We now cover more than 120,000 financial businesses. And further extensions to our remit are in prospect.

Until recently, our workload expanded quickly. This was partly because of a steady increase in the underlying number of complaints across the whole financial sector, coupled with the extension of our remit to new areas. But on top of that there was a surge of complaints about mortgage endowments - which at one stage represented more than half of the new cases we were receiving.

The surge of new mortgage endowment cases has now largely petered out. Our assumption is that this is because the events in question increasingly fall outside the time limits set by the Financial Services Authority (FSA). Indeed, new mortgage endowment cases have fallen off even more quickly than we and the financial services industry had expected.

Nevertheless, a significant number of mortgage endowment cases have not yet completed all the stages of our process. These include many that are coming up for decision by an ombudsman - the final and most formal stage of the process.

But the steep fall in the number of new mortgage endowment cases means that the ombudsman service faces a sharp decline in the total number of new cases coming in - despite a steady underlying growth in complaints on other issues, and a significant increase in some areas such as payment protection insurance.

The overall picture was complicated for a while during 2007 by a rush of cases about charges levied for unauthorised bank overdrafts. But the significant and controversial legal issues raised are now being considered by the High Court in a case involving several banks, a building society and the Office of Fair Trading (OFT). So individual cases are on hold, pending the outcome of that court case.

To handle the reduced workload going forward, the ombudsman service is in the process of restructuring itself. We instituted a freeze on recruitment some time ago, and we have released staff who were engaged on temporary contracts.

But because the decline in mortgage endowment cases has been sharper than expected, the restructuring necessarily includes a redundancy programme for some of our staff. This involves human and financial costs - with expense arising from disruption caused as well as from compensation payable.

The restructuring is not just a question of scaling down. It also involves redesigning the service's structure to enhance our existing drive for further improvements in quality of service and efficiency of operations, as well as planning for the longer term. At the same time, it is important to maintain the values and stakeholder confidence we have worked hard to achieve.

Our Board has long been committed to commissioning regular independent external reviews of the ombudsman service every three years. The 2004 independent review, led by Professor Elaine Kempson, reported that

the Financial Ombudsman Service is a thoughtful, well-managed organisation that is doing a good job under difficult circumstances.

The 2007 independent external review, led by Lord Hunt of Wirral, is under way and due to report early in 2008. It is looking in particular at the accessibility and transparency of the ombudsman service.

Against that background: chapter 2 of this document summarises how our corporate plan was implemented in 2007/08; chapter 3 outlines factors that we need to take into account in updating our corporate plan for the future; and chapter 4 sets out the actions that we propose to take in order to deliver this work.

Each year the ombudsman service produces a budget for approval by the FSA. This sets out the resources and income required for our work. Within the wider context of our corporate plan: chapters 5 to 8 set out, for consultation, the factors underlying our proposed budget for 2008/09 and the way in which it is proposed that the budget should be funded.

image of corporate plan and 2008/09 budget

For printed copies of this or any of our publications, phone 020 7964 0092 or email publications.