The way serious complaints within the Financial Services Industry are dealt with and the industry regulated has been changed by the arrival of the Financial Services and Markets Act, which came into force on 1 December last year - N2. We now have a single ombudsman, The Financial Ombudsman Service, instead of at least eight different services.
It was as long ago as July 1999 that we reported the appointment of Walter Merricks as the new overlord of all the Financial Ombudsman schemes. He was then the Insurance Ombudsman and his appointment was warmly welcomed by Marie Jennings, NfCG Chairman at the time and Deputy Chairman of the Insurance Ombudsman Council.
We now learn that the Chief Ombudsman has assembled his team of three principal Ombudsmen. They are David Thomas, whose responsibility is banking and loans, Jane Whittles, investment, and Tony Boorman, insurance.
These Ombudsmen now follow the new rules of the Financial Ombudsman Service when dealing with cases referred to them. Tony Boorman promised in Ombudsman News last October that the general approach to resolving disputes under the new jurisdiction will remain much as before, with the emphasis on what, in their opinion, is fair and reasonable in all the circumstances of the case. Jane Whittles, in a later edition, hoped that most practitioners had found the transition of authority following N2 as business as usual. If so, then the move has gone to plan. However, new rules are now in place and there will be reports on the effect they are having on the disputes referred to the scheme.
Perhaps the most significant change in the field of general insurance is that complaints arising from small businesses come, for the first time, within the Ombudsman's jurisdiction. A small business is one with a gross annual turnover of less than £1 million. The same extension of responsibility applies to charities and trustees.
The Act brings some new types of general insurance policies into the Ombudsman's remit, such as business interruption, and many areas of complaint are now covered that the Ombudsman was previously unable to deal with, such as insurance cover for property arranged by a residents' association.
A court case, that of Needler Financial Services v Tauber, is regarded as an important test case in investment matters when considering complaints where the complainant received windfall benefits. Should these windfall benefits be taken into consideration when compensation is calculated? The Ombudsman's view is that when customers receive a windfall benefit, in whatever form, then it will be disregarded when deciding the amount of compensation they should receive.
There are, however, still uncertainties as to how to deal with a small number of cases, and guidance is awaited from the regulator. The Personal Investment Authority, operating before N2, issued a Regulatory Update 94 about the case and this provides the basis for moving forward before formal guidance is formulated. Details are on the FSA website - www.fsa.gov.uk
In the field of banking and loans, mortgages still remain the largest area of complaint. Dual variable mortgage rates have been the cause of much discussion and complaints to the Ombudsman. These cases are still ongoing. In two of them the adjudicators recommended that the borrowers should have their mortgages linked to the new, lower, variable rate. Both lenders appealed and the cases are being reviewed before an Ombudsman issues a final decision. As we go to print a ruling has been made in one case upholding the adjudicators' recommendation.
When the Ombudsman receives a large number of complaints (they always call them cases) about exactly the same financial product, his staff identify one or more typical cases as lead cases. By concentrating on them, time and duplication of effort is saved for all concerned. It also helps to expedite conclusions. The other cases are parked temporarily, pending the outcome of the lead cases. These lead cases are not test cases, as this latter term can mean a case that is referred to a court for a ruling.
Which cases are lead cases is sometimes discussed with the firms involved, so that the right ones, with all the features common to the other parked cases are selected. It is, however, the Ombudsman's decision which cases are lead cases, and his department will never comment publicly about individual cases, even to set the record straight, as this might draw them into commenting on the details, including sensitive personal and commercial information.
In the next issue of Consumer News we will give some examples of the Financial Ombudsman Service in operation.
Readers are invited to submit their own examples if they are willing to have them published.
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