Memorandum by the Financial Services Ombudsmen
1. We are grateful for the opportunity to offer
some brief observations to the Committee as it considers the draft
2. The Financial Services Ombudsman scheme provided
for in the Bill is intended to embrace and replace all our schemes.
Of these two are voluntary (insurance, banking); one derives authority
direct from statute (building societies); and two derive authority
from SROs established under the Financial Services Act (investment
from IMRO, and personal investment from the PIA).
3. As a group of Ombudsmen principally affected
by the Bill, we have worked together to make recommendations to
the FSA. We made comments on the July 1998 draft to the Treasury
and have had a number of helpful meetings with Treasury officials.
We welcome section 11 of the Treasury's progress report.
4. Broadly speaking we had two principal points
of concern: first that the new scheme might, with the due process
requirements of ECHR, and its provisions for appeals and costs
orders, resemble a court or tribunal rather than an Ombudsman
scheme; and second that the scope of the scheme might still leave
out many aspects of financial services where people would expect
them to be covered.
5. To some extent the first concern has now
been met by the announcement on 1 March by the Economic Secretary
that the provisions for appeals and costs orders between parties
would be dropped, and we greatly welcome that. The impact of the
due process requirements of Article 6 the ECHR has remained a
matter of concern to us from the start, and we have attempted
to consider and plan how reformed procedures might comply with
these requirements while retaining the informality and flexibility
that are the hallmark of an Ombudsman approach. It will be necessary
to offer hearings to parties who request it in any case where
there is a dispute of material facts. This will have a substantial,
but somewhat unpredictable, impact on the work of the scheme.
It could well encourage representation for which no legal aid
will be available.
6. As far as the scope of the scheme is concerned,
the following practical problems appear to remain: unless mortgage
provision is regulated, complaints against unauthorised mortgage
lending firms (e.g., centralised lenders) cannot be covered by
the compulsory jurisdiction. Consumer credit firms offering personal
loans, often linked to payment protection insurance, would also
be outside the compulsory scope. There remains no mechanism for
bringing activities within the compulsory scope of the scheme
if they are carried out by firms that do not require FSA authorisation.
A significant number of firms involved in mortgages, credit cards
and other loans will not require FSA authorisation. In the nature
of things, it is those firms most likely to generate problems
that will be least likely to sign up to a voluntary jurisdiction.
We have proposed, with support from the Director-General of Fair
Trading, that it should be possible to extend the scope to those
with consumer credit licences from the OFT.
Dependence on "cost benefit analysis"
7. The new approach to the scope of the scheme
will leave the FSA a wide discretion to decide what, within the
whole spectrum of regulated business, is to fall within a "compulsory
jurisdiction direction" or indeed whether to make such a
direction at all. This discretion is to be exercised after carrying
out a cost benefit analysis. While cost benefit analysis may be
an appropriate test to apply to the extent of regulation, the
value of a complaint handling and dispute resolution scheme cannot
be measured by a crude comparison of costs and savings. A case
where a small amount is at stake may involve an important point
of principle. Complaint resolution is not regulation. We question
whether the establishment of the scheme should be dependent on
an assessment by the FSA of its costs and benefits. There are
public policy judgments to be made as to the value to the public
(and to the industry) of independent complaint handling that should
be more appropriately made by Ministers or by Parliament.
8. Apart from a number of other relatively minor
points, our remaining concerns centre on the implementation of
the new scheme and the transfer of our existing jurisdictions
to the new arrangements. It is important that the service to consumers
and to the industry is not unduly disrupted, and that the new
scheme should be able to deal with complaints about events in
the recent past as well as those arising in the future. These
matters are to be the subject of transitional provisions, not
yet tabled. We assume that these are outside the scope of the
Committee's current work.
9. We would be pleased to give evidence in person.
25 March 1999
6 The Banking, Building Societies, Insurance, Investment
and Personal Investment Authority Ombudsmen. Back