UK: The Hunt Review: How This Will Affect The Financial Ombudsman Service

Last Updated: 9 May 2008
Article by Simon Morris and Jeremy Barnes

Last month, Lord Hunt published the results of his six-month review of the Financial Ombudsman Service.

The resulting report, titled "Opening Up, Reaching Out and Aiming High" contains many recommendations some of which are likely to be welcomed by those dealing with complaints before the FOS but some of which may disappoint and give cause for concern.

To read a summary of Lord Hunt's report and comment on the potential impact the recommendations may have on claims against regulated firms please see below.

To view the article in full, please see below:




Full Article

Last month, Lord Hunt published the results of his six-month review of the Financial Ombudsman Service. The resulting report, titled "Opening Up, Reaching Out and Aiming High" contains many recommendations some of which are likely to be welcomed by those dealing with complaints before the FOS but some of which may disappoint and give cause for concern.

Lord Hunt's Review

Lord Hunt's review of the FOS was specifically not a review of the quality of decision-making by the FOS. It was a review of policy and practice in relation to accessibility and transparency.

Lord Hunt identified two principles that are at the heart of the numerous findings and recommendations contained in his report:

  • the FOS must become more personalised; a principle that is the basis of many recommendations made to help improve accessibility for lower income and less educated consumers to the FOS' services; and

  • the FOS must become more predictable by investing more in policy-making and communication.

Accessibility

In summary, Lord Hunt wants to increase accessibility to the Ombudsman service. While unwelcome to firms as this may add to the number of complaints, this may only be an issue for firms with large exposure to credit products, and may in fact generate a welcome diminution in the role of claims management companies.

Lord Hunt has concluded that currently the FOS is "a middle class service for middle class people" and is intimidating to the less educated. With this in mind, it is difficult to argue with the principle that the FOS should make itself more accessible to those customers who are less well off or who are not well educated in financial matters from which Lord Hunt concluded:

  • The FOS should change its name getting rid of the word "Ombudsman" and possibly replace it with the word "complaints".

  • Case advisers should be assigned to the most vulnerable complainants to assist them in dealing with the FOS' process.

  • The FOS should actively monitor cases where complaints it receives are forwarded on to firms to be dealt with, check whether complainants have received a suitable reply from the firm within the 8 week period and remind complainants of their right to revert their complaint back to the FOS.

  • The 8-week response deadline for responding to complaints should be reduced for consumer credit cases.

Nevertheless, of some concern for those subject to the FOS jurisdiction is Lord Hunt's recommendation that the FOS be more aggressive in advertising its services. He concluded the FOS should advertise using local media and daytime TV. This would mimic to some extent the advertising of claims management companies a deliberate ploy to ensure consumers realise that the FOS is a free service that does not necessarily require the cost of employing a claims intermediary.

Lord Hunt recognised that it was important for the FOS to maintain its impartiality by not being seen to encourage consumers to complain. He suggests advertising should be "defensive" not "aggressive" and should take care to set appropriate expectations. Nevertheless, it is hard to see how such advertising can avoid the appearance of encouraging complaints which it is undoubtedly likely to do; and managing complainants' expectations is hard enough to do in a direct, personalised context, never mind in a generic advert.

Processes

Lord Hunt does not make any proposals that would substantially change FOS' current procedure.

As part of the recommendations for improving accessibility, as well in relation to other issues, the report makes numerous recommendations about the FOS's processes and jurisdiction that will alternatively please and frustrate claims handlers, including:

  • Lord Hunt rejected calls for the introduction of a "longstop" time-bar for the FOS' jurisdiction. However, he did recommend the FOS should set out its general approach for assessing evidence in cases about advice more than 6 years old.

  • The FOS should develop common forms of complaint templates to enable relevant information to be collected from the outset. Whilst this seems innocuous in principle, the content and tone of the form will be critical and firms will be keen that they avoid simply "leading" complainants to say whatever will improve their chances of success.

  • The FOS should not align itself to court processes. In particular, calls for more frequent oral hearings were rejected.

  • The FOS should retain the "fair and reasonable" test for deciding whether or not to award redress to complainants. Lord Hunt believes the test provides the FOS "wider freedom than almost any other public body" (a positive attribute, in his view) and rejected calls for a more legal approach to decision making.

  • FOS decisions should always state an amount for redress awarded rather than state a formula. This recommendation is likely to be welcomed by consumers and firms alike. It should help to achieve greater clarity for complainants when deciding whether or not to accept an Ombudsman's decision and should avoid lengthy post-decision disputes about quantum.

  • The FOS should disclose any documents it has relied on in reaching its decision. Another recommendation that is likely to be welcomed as it should aid transparency and fairness in the decision making process.

  • Of more concern to regulated firms, perhaps, is the conclusion that there is no need for an external appeals mechanism to the FOS jurisdiction. Lord Hunt took the view that the existing "internal" appeals process and the availability of judicial review provided sufficient safeguards. The protection provided by the extremely high threshold (and expensive) process of judicial review can be debated. However, the "internal" appeals process can only provide genuine safeguards from poor decision making if adjudicators' decisions are not reviewed by Ombudsmen who have already been involved in the case; and if final decisions involve a complete review of a complaint by a different individual ombudsman to that involved in the provisional decision.

  • Despite his views on appeals, Lord Hunt concluded that the FOS should continue to have discretion to reopen a decision "in the very rare cases" where relevant information emerges after a decision has been made. This seems to contradict one of the reasons for rejecting a formal appeals process: namely that it will prevent finality and increase uncertainty.

  • Whilst the report does not seek to comment directly on the FOS award limit of £100,000, it does conclude that a review is needed urgently. What's more, the report sets out various criteria for any review of the award limit. One issue not included in these criteria is the fundamental policy consideration of setting a limit high enough to protect the majority of consumers (and, in particular, low income consumers) and yet low enough fairly to reflect the compromises necessarily involved in the quick and informal FOS jurisdiction.

  • The report rejects the vociferous calls for fees to be charged to complainants or for fees to be charged based on the outcome of cases. However, it suggests that complaints that fall outside of the Ombudsman's jurisdiction should not attract a case fee.

  • Lord Hunt also proposes that higher case fees be charged to firms in cases where they fail to meet DISP time limits for providing an initial response.

  • In keeping with the overall impression that Lord Hunt is no fan of claims management companies, he recommends that they should be charged a case fee by the FOS when they put forward vexatious complaints (and should be regulated against passing this fee on to the complainant). He also advocates the prospect of claims management companies being made subject to the FOS levy.

Communication

One of Lord Hunt's more interesting and substantial recommendations results from his conclusion that the FOS is slow to share its thinking and processes and should strive to achieve a greater consistency of approach. He recommends that a new publication should be maintained, which he calls: "FOSBOOK". The objectives of the FOSBOOK should be to ensure everyone knows what factors the FOS will weigh in specific cases and provide a real time means of communicating significant case decisions.

The FOSBOOK should:

  • be a means of recording and promulgating details of the FOS' developing practice and decisions;

  • not strictly involve setting precedent but decisions should refer to FOSBOOK and explain any variation from it;

  • include statements of general approach for categories of cases;

  • regularly publish anonymised cases regarded as defining normal practice, which should result in significantly more decisions being published and published in full;

  • contain model redress calculations.

In addition to the FOSBOOK, the report recommends:

  • The FOS should work with the FSA to ensure coordinated communication on the development of the Treating Customers Fairly strategy.

  • The FOS should work towards publishing claims performance data and in the meantime should introduce an awards scheme for best performers / wooden spoon for worst.

  • The FOS should take an active role in the development of the "Stakes in the Ground" concept put forward by the Association of Financial Advisers in which acceptable industry practice at any given point in time is documented.

Relationship with FSA

This is a further key area addressed by Lord Hunt, but one where he does not make firm recommendations. He says paradoxically that FOS must be on guard against attempting to usurp or supplant regulators, yet notes that FOS is not open with its thinking or processes for fear of being perceived as a quasi-regulator.

This is the nub of the issue. Lord Hunt views FOS as the resolver of individual disputes, but fails to take into account that FOS decisions resonate beyond specific complaints, with FSA rules requiring firms to take FOS decisions into account when identifying and determining complaints. This means that a single FOS decision can result in a firm having to compensate a far wider group of customers, whether or not they have complained about the issue, on the basis of an Ombudsman's interpretation of an individual complaint following an informal procedure and on a fair and reasonable basis.

While the Hunt Report does touch on this so-called "Wider Implications" procedure, FSA's stance on firms having to adopt FOS decisions across an entire book of business lay outside his remit. This is, therefore, an area where firms may wish to use the debate started by the Report as an opportunity to challenge FSA, arguing how this is a clear example of FOS and FSA interacting to give the Ombudsman the undesired and commercially damaging "quasi-regulator" status.

Conclusion

Overall the Hunt Review has come up with some interesting albeit broadly conservative recommendations more often than not favouring the status quo. The FOSBOOK is, perhaps, the only truly innovative recommendation contained in the report. If implemented, it has the potential to benefit all users of the FOS and could help to render the process of dealing with claims before the FOS more transparent and predictable. Whether the FOS has the will, time and money necessary to make such a significant project work is a different matter.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 07/05/2008.

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