Policy
The Hunt Review - The Independent Review of the Financial Ombudsman Service
Accessibility and Transparency
Response by the Building Societies Association
The Building Societies Association (BSA) represents all 59 building societies in the United Kingdom. Building societies have total assets of just under £325 billion and, with their subsidiaries, hold residential mortgages of over £250 billion, approximately 20% of the total outstanding in the UK. Societies hold just under £210 billion of retail deposits, accounting for about 20% of all such deposits in the UK. Building societies also account for over 37% of all cash ISA balances. Building societies employ over 50,000 full and part-time staff and operate through more than 2,100 branches.
All building societies are members of the compulsory jurisdiction in the Financial Ombudsman Scheme (FOS). This paper provides the BSA’s response to the Hunt Review, the second external review of the FOS.
As a trade association for organisations carrying on the business of building societies, the Association is best placed to respond to the questions most relevant to business clients of the FOS, but we have also attempted to provide helpful comments in relation to the more consumer-focused elements of the Review.
Summary
The BSA suggests that the following matters should be examined –
- introducing a more robust filter system for initial complaints (see reply to question 1)
- reviewing the use of wider means of communication between the FOS and clients (question 2)
- assessing the merits of deadlines for the FOS to deal with complaints (question 3)
- that, FOS decisions should, in certain circumstances, be subject to review and, in making decisions, the FOS should be bound by the law (question 13)
- bringing greater transparency to the IWI procedures (question 17)
The BSA believes that publication of adjudications and/or formal ombudsman decisions is neither desirable in principle nor practical (see reply to question 11).
Responses to the Review Questions
How Accessible is the FOS?
1. Are there potential improvements to the FOS’s working methods at initial contact and subsequently which could improve its accessibility and help to secure fair outcomes for both businesses and complainants? Can any additional costs be justified?
Some BSA members have reported difficulties when a complaint, that clearly has no validity, nevertheless results in a case fee for the society because – unless it can be dismissed summarily, eg as ‘frivolous and vexatious’, a case fee is always incurred. There could well be merit in introducing a rather more robust filtering system.
2. Are there any particular improvements which would assist potentially vulnerable groups?
The FOS’s practices, outlined in paragraph 3.8 (including minimal use of automation and the use of alternative formats for people with different disabilities) seem appropriate to help disabled and other vulnerable groups. However, there could be merit in examining whether or not it should be permitted to deal with complaints substantially by telephone contact, rather than in writing only.
3. How far is a material – or perceived – barrier to accessibility created by the eight-week period that businesses are granted to resolve complaints before they can be considered by the FOS?
The BSA is not aware of any difficulties with the eight-week period. Firms must have a reasonable time to seek to resolve complaints including, if relevant, escalation of the complaint up through internal levels. Naturally, firms in practice will resolve complaints more quickly if they are able to do so and, we understand, usually do.
There is no ‘perfect period’ for all complaints, but we believe that eight weeks works quite well in practice and have heard no strong arguments to the contrary. We cannot see that the eight-week period would be paramount in the mind of a complainant at the outset of the complaint.
While we would not wish to place the FOS under undue pressure – especially given the preponderance of ‘wider implications’ complaints often generated by ambulance chasers – it seems, in principle, inconsistent that firms, but not the FOS, are subject to deadlines for resolution of complaints. The FOS has, in the past, suggested that it may be willing to look into this matter and we believe that it should be reviewed.
Consumer Outreach
4. What evidence do you have on the current effectiveness of the FOS in reaching individual consumers directly and/or through trusted third parties?
There are a number of third parties willing to act for complainants, such as citizens’ advice bureaux and other consumer organisations.
There have been problems with complaints management companies. In particular, we understand that there have been examples of aggressive selling, inappropriate acquisition of leads, misleading marketing activities and contracts, inadequate provision of information, non-disclosure of referral fees etc. It was these problems that led to the introduction of arrangements to regulate the business of complaints management, under the Compensation Act 2006.
It is only about nine months since the regulation began (23 April 2007) and it is, therefore, not yet clear the extent to which these firms may have cleaned up their act. However, the BSA is sceptical about business organisations that charge members of the public fees or commission in relation to a complaints service that is intended to be free (to the public).
We think it of key importance that claims managers inform clients at the outset that they could, alternatively, complain direct to the FOS without the use of a claims management firm. The BSA welcomes the publicity that the FOS has given for complaints management regulation and the fact that, while complainants are entitled to appoint a third party to act on their behalf, the service is free to them but complaints managers will charge a fee or commission.
5. Are you aware of good practice on accessibility within your own organisation or elsewhere that the FOS might consider adopting?
None other than mentioned elsewhere in this response.
6. How should the FOS approach the identification and targeting of under-represented groups?
It appears, from the commentary in paragraph 3.16, that a proportionate amount of work is already being carried out on this matter, and we have no further suggestions to add. It should not be assumed that a particular group is ‘under-represented’ regarding complaints simply because there are proportionately fewer complaints from a particular group than from others. The key question is whether or not the group has the same level of use of financial services products as other groups.
Business Outreach
7. How far do the FOS’s practices enable or limit the ability of businesses (in particular, small businesses) to understand how they can best participate in and contribute to a satisfactory resolution of complaints made against them?
As noted in the Review paper, mechanisms exist to help ensure proper and appropriate communications between businesses and the FOS. For example, the BSA (and some of our members) sits on the Banking and Loans Liaison Group (mentioned in paragraph 3.20). Also, the BSA and the FOS are in fairly regular contact about trends, FOS budgets etc.
A few of our members have suggested that they have not received adequate guidance from the FOS technical advice desk, but we have no reason to believe that this is a widespread cause of concern. Possibly, some extra attention might be paid to the training of those manning the desk and communications with other elements of the FOS, but paragraph 3.22 suggests that work is being done in this area.
We accept as a necessary reality that the FOS will have greater contact (eg through relationship managers) with the larger firms, since – as a matter of scale – they have they greater number of complaints. Some of our smaller members might go years before they receive a complaint that escalates to the FOS and, not surprisingly, they are less familiar with the FOS’s arrangements and procedures.
However, in 2006, when the BSA had expressed concerns to the FOS about its handling of pre-‘A Day’ endowment complaints, the FOS was extremely co-operative in arranging a seminar for smaller societies, meeting the BSA and corresponding in detail on the points at issue. Although the matter was not resolved to the BSA’s satisfaction, we have no criticism of the open and co-operative way that the FOS sought to address the issue.
8. What should be the priority areas for business outreach?
The FOS often holds seminars, some of which are aimed especially at smaller firms, and we find these very welcome. The BSA has also held joint events with the FOS in the past. We would be very happy to co-operate with the FOS in respect of further such events.
Outreach Strategy
9. What priority for investment should improving accessibility have within the FOS’s broader agenda?
The BSA is not convinced that this needs to be a priority matter. Year-on-year, the number of complaints received by the FOS has increased dramatically. Whilst we appreciate that accessibility to the FOS is the key subject of the Review, there seems to be no evidence that – in practice – it is a significant problem: certainly, the existence of any major difficulties or obstacles is belied by the numbers of complaints going to the FOS.
10. And what should its accessibility priorities be – should they differ between different elements of its work?
It would probably be a better use of resources to concentrate on physical accessibility to the FOS, ie improving the means of communications to bring the arrangements more in line with the needs and practices of consumers and industry eg telephone and email communications (see the reply to question 2 above).
Information about Individual Cases
11. Should the FOS publish all or some adjudications and/or formal ombudsman decisions? What reasons are there for or against publication?
The BSA believes that publication of adjudications and/or formal ombudsman decisions is neither desirable in principle nor practical.
At first glance, the arguments in favour of publication are that consumers might gain a better understanding of their rights and firms might obtain an improved knowledge of industry best practice. However, on deeper analysis, a number of significant problems become apparent –
- The FOS is obliged to adjudicate complaints on their individual merits – this is fundamental to the service that the FOS provides. Considerable detail would need to be included many of in the reports of the adjudications/decisions to ensure that readers were fully appraised of the distinctions between different cases. Generally speaking, some firms and complaints managers might have the time and resources to trawl through the large number of reports, but it is unlikely to be a realistic source of information for most members of the public. In any event, Ombudsman decisions do not provide precedents, so what would be the point of publishing them?
- Publication of adjudications/decisions could change the way that firms act and the nature of complaints going to the FOS could change detrimentally. Some firms might be encouraged to settle complaints, not on the basis of merit, but on the basis of publicity attracted by the published reports. Firms, complaints managers, the media and others would be encouraged to treat the published reports as the basis for future activities, rather than the fair treatment of customers. Indeed, some complaints managers would be likely to use the reports to ‘drum up trade’.
- Products, terms, market and economic circumstances, and a whole range of other matters change over a period of time. The existing arrangements for dealing with trends via reports in Ombudsman News are far more practical and sensible than the wholeseale reporting of adjudications/decisions.
12. What practical issues (eg on selection criteria, anonymity, approach to summarising, regularity and form of publication) would arise and how should they be resolved.
If any full adjudications/decisions were to be published, then in our view they would all need to be published. Partial publication would exacerbate the problems outlined above; for example, if a partial picture of FOS adjudications were to be presented then more, rather than less, confusion would result.
13. Within the broad remit of the current FSMA and DISP rules, to what extent should the FOS align its practices with those of the legal system?
The BSA sees no particular case for the FOS to align its practices – in the sense of procedures and arrangements – with the legal system. The FOS provides a generally effective set of informal arrangements for handling complaints, which have proved fairly robust even in the light of large numbers of ‘wider implications-type’ complaints.
However, there are two relevant areas in which change should be examined. During the two-year review of the FSMA (FSA/FOS CP 04/12), the Association made a case that FOS decisions giving rise to wide business implications should be open to independent review - (see paragraphs 37 - 54 of the BSA’s response, which provide detail on this matter). The Association’s view on this matter is unchanged and, indeed, the need for the introduction of review arrangements has been strengthened by the more recent developments regarding the wider implications process (see reply to question 17 below) and pre-‘A’ Day endowments complaints.
A second, more modest, change in the current arrangements, which merits serious analysis, is that of requiring the FOS to be bound by the law. During Parliamentary debates on the FSM Bill, significant concerns were expressed that the lack of an appeal would breach Article 6(1) of the European Convention on Human Rights (ECHR), which states that “In the determination of his civil rights and obligations … everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.”
The ECHR was incorporated into English law by the Human Rights Act 1998. Businesses have human rights – Wilson v First County Trust [2002] QB 74 and it is inappropriate to interpret those rights restrictively (Delacourt v Belgium (1970) 1 EH).
Some legal commentators concluded that the FSMA was not human rights-compliant. A major concern was that it was compulsory for firms to submit to the FOS’s jurisdiction, yet the Ombudsman service itself was the tribunal for Article 6 purposes.
However, a provision was later put into the FSA’s DISP Rules (DISP 3.2.14G) requiring the Ombudsman, in deciding whether there should be a hearing in relation to a complaint (and, if so, whether it should be in public or in private) to have regard to the ECHR. It is this provision only, and the operation of it, that stands between the FSMA and non-compliance with the ECHR.
Therefore, there is a strong burden on the FOS to deal fairly with requests for hearings and to conduct them in an appropriate fashion, to ensure compliance with Article 6 of the ECHR. The Association has no reason to believe that the FOS is not being scrupulous in seeking to meet this requirement, but it is questionable whether a rules provision requiring regard to be had to the ECHR can, on its own, make such hearings substantively compliant with the ECHR.
In considering what is fair and reasonable in all the circumstances of the case, the Ombudsman must take into account the relevant law, regulations, regulators' rules and guidance and standards, relevant codes of practice and, where appropriate, what he considers to have been good industry practice at the relevant time.
But, as was made clear in IFG Financial Services v Financial Ombudsman Service (2005) EWHC 1153 (Admin), that the Ombudsman is not bound to apply the law provided he takes it into account. Therefore, the Ombudsman is, in practice, free to disregard the law in making his decision provided he first considered whether or not to apply it.
English law long preceded ombudsmen and is derived from Parliament or from the courts. The fundamental characteristic of the law is to provide justice. The BSA cannot see good reason, in principle, why ombudsmen should be unique in being able to disregard the law, especially as firms have no right of appeal from Ombudsman decisions and judicial review (with its very high procedural hurdles) is no substitute for an appeal.
It seems to be generally taken as read that there is no human rights requirement for the FOS to be bound by the law. The BSA has not researched this matter in detail, but there appear to be some indications that the matter is not as clear-cut as seems to be generally assumed.
For example, the objective of Article 6 was “to enshrine the fundamental principle of the rule of law” (Salabiaku v France (1978) 2 EHRR 214). Human Rights Law and Practice (Lester and Pannick – page 150), states that the tribunal “must determine matters within its competence on the basis of rules of law”. In Golder v United Kingdom (1975) 1 EHRR 524 the court, in discussing Article 6 rights, stated (at paragraph 66 of the Judgment) –
“The fair, public and expeditious characteristics of judicial proceedings are of no value at all if there are no judicial proceedings” (our italics).
Leaving aside the legal position, it might be argued that to require the Ombudsman to be bound by law would be difficult in practice, but –
- The fact the DISP Rules require the Ombudsman to take into account the relevant law when making his decisions, pre-supposes that the Ombudsman will know, or be in a position to receive advice on, what the law is (or was at the relevant time).
- The Ombudsman would be bound to apply the law but, where there were additional factors relevant to the decision (that were not covered by law) then he would continue to be free to make a decision on those matters on the existing basis.
Practical examples of the consequences of the FOS being bound by the law might include the need to apply –
- legal limitation periods in respect of complaints (notably, under the Limitation Act 1980, as amended)
- the law that existed at the time of the act or omission complained of (there was considerable concern in the industry that the FOS might have applied post -‘A Day’ law to pre - ‘A Day’ cases in respect of endowment complaints).
In cases such as these, the change would considerably increase certainty for both firms and complainants.
14. How can the FOS best develop and communicate its policies and practices in a manner consistent with principles-based regulation?
It is possible that the principles-based approach could lead to greater uncertainty in relation to FOS complaints, because the FOS has to continue to judge what was fair business practice, but in the light of less-specific regulatory provisions, and perhaps with the risk of greater retrospectivity.
In the BSA’s view, the FOS’s communications are generally well thought-out and effective and we do not see how the move towards principles-based regulation would require any changes. Overall, effective communications among the relevant parties and greater use of the wider implications procedures and, perhaps, test cases could all help address the point.
15. How effective do you find the FOS’s publications; telephone helplines; website; and industry/consumer liaison arrangements in enabling you to understand and inform FOS policy and practice? How are these sources used within your organisation?
The FOS Website is clear and easy to navigate. Ombudsman News is helpful and informative. We usually draw our members’ attention to new editions of Ombudsman News, if it includes articles likely to be relevant to building societies. We have also prepared an index to the articles in Ombudsman News most likely to be of interest to building societies. A similar index to all the items, navigable via the FOS Website would be useful.
The BSA participates in the Banking and Loans Liaison Group and the FOS Industry Funding Forum. We find these useful groups, but the value of the former depends to some degree on what are the prevailing issues. We keep our members informed of all significant FOS-related developments through the use of Circulars, Website briefs etc.
16. Do you have any other sources? What else would you value?
As a trade association, we have fairly regular contact with colleagues at the FOS. Other than as stated elsewhere in this response, we have nothing further to suggest.
17. Why has the IWI procedure been relatively little used? What additional changes are needed.
The BSA responded in detail on this topic during the two-year review of the FSMA (FSA/FOS CP 04/12) (see paragraphs 10 - 24 of the BSA’s response). Recently, the procedures were revised and re-launched by the FOS, FSA and OFT.
Greater transparency regarding the application of the procedures is required. For example, we understand that the IWI procedures were regarded as having been triggered in relation to cheque fraud (in 2006) and current account charges (ie in relation to the subject matter of the impending High court ‘test case’). However, although the BSA was closely involved in these matters, we did not perceive that they were being progressed through IWI.
We need to see how the revised arrangements bring improvements in practice before making further comment.
Communicating Outcomes
18. What is the appropriate balance for the FOS between reasonable claims for confidentiality and modern expectations of openness? What are the lessons from other sectors?
It is consistent with the FOS’s role, as an independent arbitrator of individual disputes, that it should preserve the confidentiality of the parties. We have already provided comments on the related matter of the publication of adjudications and decisions.
19. What level of information should the FOS put into the public domain about outcomes of cases by individual businesses? What could be the consequences? What should be withheld and why?
See response to question 11 above.
20. If more data were to be made publicly available, what practical issues would need to be overcome in relation to: data quality and timeliness; fair presentation; and accessibility for the needs of different audiences? What sort of qualifications, or “health warnings”, if any, would need to be attached to them?
We believe that our answers to the above questions also deal with the substance of this one – in summary, we believe that, in relation to publication of material relating to FOS decisions and adjudications, the status quo is satisfactory for both firms and complainants. If further information were to be disclosed, the key message should be that the FOS decides individual complaints based on their individual circumstances.
Communications with Regulators
21. What level of transparency should there be in communication between the FOS and the FSA and OFT?
The BSA believes it important that the FSA and the OFT approach their roles in a ‘joined-up’ manner. While we naturally acknowledge that the role of the FOS is very different, it can have ‘quasi-regulatory’ effects and, subject to appropriate broad consultation on changes to rules and practices governing such information exchange, we favour a high degree of transparency in order to help prevent confusion, overlap and – potentially – double jeopardy.
17 January 2008
