Examination of Witnesses (Questions 180-234)
Q180 <Chair:
Good morning. Welcome to the Treasury Select Committee. Thank
you very much for coming to give evidence this morning. We'd like
to get straight into questions. I'd like to ask Natalie Ceeney,
you're costing £100 million a year, I think that's right,
broadly speaking. Do you know what the counterpart cost, the total
compliance burden cost, is for the people with whom you interact?
Have you ever asked that question? I can see there's silence to
the first question. Could I suggest that you start to gather that
information? It strikes me that what we really need to know if
we're going to work out whether you are providing value for money
as a service is not what your cost is to the consumer but what
the cost is of the total compliance burden; that is, both the
firms that you're dealing with and your overhead combined. Because
the £555 figure doesn't actually tell us very much without
that information.
Ms Ceeney: Maybe
I could answer the question but in a slightly different way, because
I think at the heart of the question is what value do we add.
Our role, of course, is to look at individual cases.
Chair: Sorry, could you
speak up?
Ms Ceeney: Sorry.
Our role, of course, is to look at individual cases and decide
really what needs to be done to put that situation right. So,
in a way we add value in a number of ways, which is I think why
I was struggling a bit with the question. Some of it is to put
right what was wrong in a cheaper way than the courts. So, some
of our value can be measured in the fact that our cost is significantly
less than if cases were brought in the courts, both to firms and
consumers. But a significant part of our role is also about underpinning
financial service confidence. So, the fact that firms are able
to say to consumers, "If it goes wrong there's a body that
we fund that can put things right", that has a number of
benefits, not just in terms of financial benefits to firms and
consumers but also an underpinning of confidence benefit that's
pretty hard to quantify.
Q181 <Chair:
Yes. I understand that what I've just asked of you, if you hadn't
already started to do that work, might generate quite a bit of
activity for a while and needs quite a bit of thought. You need
to work out not only what is the cost of running the compliance
offices of these firms, which they'll be able to tell you quite
easily, but what the additional cost to the rest of their firms
is of the questions that are asked of them via you.
Ms Ceeney: But,
to answer that in a bit more detail, what we do is resolve complaints
that can't be dealt with by the firm. Now, that's a function that
will be done by someone whether we existed or not. The value of
the Financial Ombudsman Service and why we were set up voluntarily
by firms and then made a statutory function in 2000 was to make
us easier to deal with than the court service. The functions that
we deal with in firms have to exist whether they deal with us
or whether they deal with the court service. Because we don't
require legal representation, we don't require firms to have lawyers
who deal with us. We require firms to have teams who simply forward
us their documentation.
So, one of the reasons I'm struggling with your question
is I don't believe there is a direct cost of dealing with us in
the way I think you're suggesting. To give a pretty live example,
if a consumer refers a complaint to us, all we require of the
firm is to send us their documentation, which they've already
gathered to do their own complaint handling. So our direct cost
requirement for compliance of that firm is pretty small.
Chair:> I'm
not going to get into the detail of what answer you might come
to us with now, but I'd be grateful if you could start to think
about the question. Andrea Leadsom.
Q182 <Andrea
Leadsom: To Mr Neale, to what extent do European
issues make a difference in how you'll be delivering your service
later on? Are there any concerns about the way regulatory structures
in Europe are changing?
Mr Neale: We're
very much involved in the discussions that are currently under
way bearing on European legislation on deposit insurance schemes.
I think I would say that Europe is to some large extent moving
in the direction in which we have already travelled. So, the European
Union directive that is currently under discussion aims to bring
about faster payout to depositors in the event of the failure
of a bank or other deposit taker. We are already taking action
to ensure that we can pay out depositors quickly in the UK so
that banks can fail without jeopardising the interests of their
depositors. Indeed, we aim to have by January a capacity to pay
out depositors within 20 days were a bank to fail and were the
authorities to choose insolvency and payout as the method of resolving
it.
Q183 <Andrea
Leadsom: So, are you saying, then, that in some
ways Britain is already ahead of the game, ahead of where Europe
is moving?
Mr Neale: I would
say that we are, indeed, ahead of the game and that much of the
European legislation aims to bring Europe up to some of the standards
that we are seeking to put in place here.
Q184 <Andrea
Leadsom: So how closely are you involved as an
organisation with the writing of European regulations?
Mr Neale: Closely
involved. We're involved in two ways. We obviously work very closely
with our partners in the UK, both with the Treasury and the FSA,
in seeking to influence European legislation. But we are also
members, and influential members, of the European Forum of Deposit
Insurers and we also seek to influence European legislation through
that forum.
Q185 <Andrea
Leadsom: So, not wanting to put words in your mouth,
but could we say this could be a European success story that Britain
is having a hand in a co-ordinated approach?
Mr Neale: What
I want to say is that it is clearly in the interests of consumers
across Europe that we have efficient, fast, responsive compensation
arrangements in place.
Andrea Leadsom:>
Thank you.
Chair:> Chuka
Umunna.
Q186 <Mr
Umunna: Could I just ask a bit more about the Financial
Ombudsman Service? The director of the Association of Independent
Financial Advisers has suggested that with the changes to the
regulatory regime it really necessitates a review of your organisation's
role, Ms Ceeney, and also the accountability of it. Are you confident
of both the role and the accountability of your organisation?
Ms Ceeney: I am
confident of our role and I would also suggest it's not hugely
surprising that there is conflict around what we do. And what
we do is look at individual cases, and in every case there's a
winner and a loser. We deal with around 200,000 cases a year,
so it's perhaps unsurprising that people, whether it's on the
consumer side or industry side, quite rightly look closely at
what we do and look at whether we can do things more effectively.
We are quite regularly reviewed and we're quite keen
to be accountable and to demonstrate that to our stakeholders.
So, we were, of course, set up 10 years ago. We were also reviewed
in 2007 by the Select Committee as we took on consumer credit
jurisdiction. Our board voluntarily does reviews every three years,
external reviews. So Lord Hunt reviewed us a couple of years ago;
we've got the National Audit Office reviewing us next year. And
we have regular dialogue with stakeholders because we are keen
to constantly improve and be accountable. But I do believe the
Financial Ombudsman Service has been a success story and I do
believe we play a pretty valuable role.
Q187 <Mr
Umunna: The AIFA has also accused you of acting
in a quasi-judicial way. How do you respond to that?
Ms Ceeney: We are
a quasi-judicial service. We were set up 10 years ago as an alternative
to the courts, as a low-cost, faster alternative to the courts,
and it is our role. Our role is inherently quasi-judicial. We
look at cases and we decide on the merits of each case who wins.
So, we are unashamedly quasi-judicial.
I think where I hear more criticism from industry,
if I can take this head on, is that we act in a regulatory role,
and there I would be more robust. We're not a regulator. We look
at cases, so we extrapolate from what we see a case is and sometimes
we do have issues that arise from that that we pass back for wider
insight to the regulator. But we are quasi-judicial; we're not
regulatory.
Q188 <Mr
Umunna: With the review and the new structure coming
into place, what are you going to do to respond to that? How are
you going to change the way that you work? Obviously, your contact
and your relationship with the new different instruments that
there are going to be, are going to be crucial. How are you going
to respond to the big change that we're about to see?
Ms Ceeney: In a
couple of ways. Directly, the proposals pretty much leave the
Ombudsman working as is, which we're pleased about because we
do believe the model has worked well. But obviously we'll be dealing
with different bodies and we're already starting to explore that
with all the key stakeholders. I think one of the potentially
most significant impacts on us will be if more is done to address
systemic failures early. Because one of the issues that we've
seen in the last decade is as we deal with individual cases we've
seen a lot of cases that hinge on the same underpinning systemic
failure in the market. And I think probably most people would
say those systemic failures haven't been tackled quickly enough.
So, one hope we have for the new structure is that by raising
the bar on consumer protection lessons will be learnt on systemic
failures earlier. That will be good for us, good for consumers
and good for industry.
Mr Umunna:>
Thank you.
Chair:> Michael
Fallon.
Q189 <Michael
Fallon: I come back to this issue of cost. You
say you're dealing with 200,000 cases a year. What is the average
cost per case?
Ms Ceeney: The
average cost per case is around £600. The reason I say "around"
is we can deal with very, very complex investment cases but we
could also deal with pretty simple cases. So, the individual case
ranges hugely but the average is around £600.
In that calculation that doesn't include the million
calls we get a year. We try and resolve things at the earliest
point of contact. So, we take around a million calls in our contact
centre, and a lot of times, we can give the right answer to the
consumer on the end of that phone instantly. So, the cost I'm
quoting is for the cases we then take on because we can't give
an instant answer and progress in that quasi-judicial way.
Q190 <Michael
Fallon: Yes, but that doesn't take account of the
cost to the industry itself.
Ms Ceeney: No,
but as I've said earlier, I believe we're actually cheaper to
deal with than the alternative, which would be the courts, to
industry.
Q191 <Michael
Fallon: Well, you said in your annex in paragraph
6 that you're dealing with this at a fraction of the costs incurred
in court.
Ms Ceeney: Yes.
Q192 <Michael
Fallon: So you must know what the overall cost
of your service is if you know it's a fraction?
Ms Ceeney: Yes,
when we were set up in the year 2000, at the time the cost of
an average court case was around £3,600 compared with our
unit cost at the time of around £700. Now, we've gradually
over the last decade brought those unit costs down and I'm still
continuing to try and bring those unit costs down. Average court
case costs have not come down to anywhere near £600. So,
our direct alternative would be to use the courts and we're confident
we're a fraction of the cost of dealing with the courts.
And to add, that's our direct cost. If industry or
consumers take a case to court, of course, they need legal representation.
One of the big benefits of the Financial Ombudsman Service is
you don't need legal representation to deal with us.
Q193 <Michael
Fallon: Yes, but how do we know whether the charges
you're imposing on the industry are the right charges?
Ms Ceeney: It's
a very good question. We are the largest ombudsman service in
the world, so we do regularly benchmark but in a way by being
the largest we're often the one looked to as opposed to finding
easier comparators. It's one of the reasons our board has invited
the National Audit Office in next year to do a value for money
study because we're keen to look at how we can improve. So, that
will be a published study which will be tabled to Parliament so
that we can be as transparent and as open as we can about value
for money. I'm also, as a new chief exec, looking closely at our
costs because my ambition would be to make us as cost effective
as possible. So, I'm hoping to—
Q194 <Michael
Fallon: Yes, you're telling us how you might improve.
What I asked you is: how do we know whether the charges you're
imposing on industry are the right charges? How do we know that?
Ms Ceeney: Well,
in a way, the way to look at that is I think two measures: one,
what's the cost of the next best alternative and are we better
than that; and the second is external review of value for money.
And we're doing both of those exercises. So, as I mentioned, we
are significantly less than the courts but we have also invited
the National Audit Office in to review us because we're keen to
find ways of bringing it down. As we benchmark with other ombudsman
services we do come out well. As we benchmark with the courts
we do come out well.
Q195 <Michael
Fallon: How do we know the balance of charging
is right? You're putting all the charge on industry. Have you
considered putting some charge on the consumer?
Mr Boorman: Very
briefly, the answer is in your hands, ladies and gentlemen, because
Parliament presently provides that our charges are collected by
two means: one a levy on the industry collected by the FSA and
the other on a case fee basis which again is collected from the
industry, collected from the firms that actually complain or are
complained about. So, if people feel that there is a requirement
for customers to meet some of the costs, that's not something
that we ourselves can achieve; that's something for you.
Q196 <Michael
Fallon: Sure, but do you have a view on it? Do
you think the balance is right at the moment?
Mr Boorman: I think
it's been a helpful feature of an ombudsman service for 20 years
that firms can say to customers, "If you're dissatisfied
with my answer, you can go to this free service, free, impartial,
independent service, which will look at that calmly and independently
and reach a view about whether I, the financial firm, have reached
the right decision on that case". So, I think that's a useful
thing for the industry perspective. Obviously, it's of value to
customers as well. So, perhaps that's a question you should ask
industry and customer groups.
Ms Ceeney: And
I think it's worth adding the model that Parliament put in legislation
10 years ago was based on the services that had been set up by
industry. So, essentially, what Parliament did 10 years ago was
formalised the industry set-up and it was industry that proposed
the current funding model. I would say I talk a lot with industry.
It's not the main concern I hear. I don't hear big questions raised
about the funding model. I do hear hardfought battles about
individual cases, as you would expect for a quasi-judicial service.
But I don't detect concern about the funding model for the reasons
my colleague has said.
Q197 <Michael
Fallon: But you do get concerns about your charges?
Ms Ceeney: Actually,
I would say it's not on the list of things people raise with me,
I'll be honest. What I hear are concerns about individual cases.
As I said, the alternative to us would be the courts, which costs
infinitely more. It's not something I regularly get raised with
me.
Michael Fallon:>
Thank you.
Q198 <Chair:
I just want to clarify what we're trying to obtain here, which
is the process of dealing with all complaints is ultimately paid
for by consumers, all consumers. What we need to arrive at is
what they're paying for that, which is much more than the £555
per case multiplied by the number of cases. It is another number
and at the moment we can't do a value for money study on you because
we don't know what that number is. That's the point that Michael
was trying to make and that I've been trying to make this morning.
I recognise that you may not have come armed with an answer to
that question, but we'd like one. Are you sure you want to add
something or shall we leave it there and ask you to come back?
Why don't we do that? Andy Love.
Q199 <Mr
Love: I'd just like to pursue the final response
you gave to Mr Fallon about the reasons why the consumer isn't
asked to make a contribution. You must be aware of some of the
industry concerns. I'll take the case of a mortgage endowment
where there was a clear difference of view, I think, between your
service and some in the industry in relation to the compensation
that should be paid. Do you think there is any merit in the argument
that's used by the industry that since it's free for the consumer
to refer to the Financial Ombudsman Service when they don't have
a case with the company, there's nothing to stop them because
it's free going to you to gain some benefit from it?
Mr Boorman: Certainly.
Do we see cases which are frivolous and do we reject those out
of hand right at the beginning of our process? As my colleague
has been saying, we receive a million enquiries from customers
a year. We take on 200,000 cases. So, I'm very clear that what
we should be doing is rejecting cases which are frivolous out
of hand. We're very clear about that.
Q200 <Mr
Love: But I think the concern in industry is that
you take a different perspective from them. Now, it may well be
entirely correct for you to do that. They would say, and I take
the case of mortgage endowments, that your interpretation of what
was a good case for compensation on mortgage endowment was not
that that many in the industry felt was a good case. How do you
respond to that criticism?
Mr Boorman: I think
you've described the challenge of our job. Of course not always
will the industry, not always will customer groups agree with
the judgments that we need to make in individual cases. Of course,
many of the decisions that we have to make—whether it's
about mortgage endowment cases, payment protection cases, spread
betting, pet insurance or any of the other many issues that we
have to deal with—can be controversial for the individual
firms and for the customers and customer groups concerned. That
is our world and it's a responsibility we take with considerable
seriousness to reach carefully balanced judgments about the individual
cases that we deal with.
Q201 <Mr
Love: Let me take another case. We're coming to,
I think, a bit of a crunch over payment protection insurance.
I wonder whether your service sees any merit in ventilating the
principle of some of these issues in the courts to give a steer
that would be seen as being entirely objective. I understand the
argument about costs, but is it worth ventilating in the courts
to give a steer so that both the industry and you have a clear
view going forward about where it's appropriate to pay compensation?
Mr Boorman: The
Committee will understand that we have to be a little bit careful
of our answers because, as you're aware, at least four of the
major banks have suggested just that in judicial review proceedings
of the decisions that the regulator has taken about how to deal
with what looks like an area where there was at the very least
systemic allegation of systemic failure, and a review has also
been sought of some of the actions that our service has taken.
We always welcome guidance from the courts about the issues that
we need to deal with. I have to say in careful frankness that
we do not presently see that there is a need for particular guidance
from the court about the decisions that we're making in these
cases. But, clearly, that's now a matter for the courts.
Q202 <Mr
Love: Let me just come back finally to the issue
about whether the balance of payment is right and to suggest to
you the argument that a small contribution from the consumer would
eliminate those frivolous cases that you've talked about, but
also might establish a better balance between the consumer concerns
and the industry concerns.
Ms Ceeney: If I
can add, this debate really is a perennial one and, as my colleague
said, this really is one for you who set our legislation to take
an ultimate view.
Q203 <Mr
Love: But we're interested in your view because
that will inform the recommendations we make.
Ms Ceeney: Yes.
This was a key issue that Lord Hunt looked at when he did the
independent review on behalf of our board that he published a
couple of years ago. His view after careful consultation with
stakeholders was that retaining the current model would be a benefit.
I think there are many challenges. Would a small fee prevent some
frivolous complaints? Well, undoubtedly, yes. Would it deter people
perhaps on lower incomes or people who are less likely to bring
cases otherwise? Also inevitably yes. I think our concern would
be that deterring people from bringing cases who do have a legitimate
grievance would be problematic and I think that's a difficult
balance to bring. Our view is the current model has worked pretty
well but it's not an easy argument, that one.
Q204 <Chair:
Would you take a careful look at that? The Committee has no view
on whether there should be an entry fee. We're looking for your
considered view, not on the basis of what was put on the statute
book 10 years ago but as a consequence of the fact that legislation
is now being fundamentally reviewed. I note that at £5 or
£10 you got 800,000 frivolous cases. I think that's pretty
much what you said out of a million?
Ms Ceeney: No.
Q205 <Chair:
Well, were there not 200,000 that were being taken much further?
So there's 800,000 left.
Ms Ceeney: Yes,
the 800,000 are calls we get. With some of those we can just give
straightforward answers on the phone, so they're not all frivolous.
Chair:>Oh, I
see.
Ms Ceeney: I think
what my colleague was saying is where we do get frivolous calls
we do try very hard not to take them on because we don't think
it's a good use of industry's money.
Q206 <Chair:
I think it would be very helpful to have advice on this area
on the basis of the breakdown of the types of cases you have.
Ms Ceeney: Happily.
Chair:David Rutley.
Q207 David Rutley:
Both you and the Government note the need for the Financial Ombudsman
to be independent but you also note the "unique and impartial
insight" into where things go wrong in retail financial services.
How effective do you think you have been in the past at passing
on your knowledge and insights to the regulator and to financial
firms to prevent further complaints happening in a particular
area?
Ms Ceeney: I think
this is an absolutely core issue for us because, as you're saying,
we see individual cases where it has gone wrong. Sometimes those
are just a branch sale that happens to have gone wrong and we
can put it right but we also see widespread systemic issues. I
think there have been issues in the past. There are perhaps things
we would like to be different from our side and there are perhaps
things about the wider regulatory environment.
The two issues I would flag are one around transparency
and one about speed. There are limitations in FSMA about what
we can publish that I would welcome being looked at. For example,
18 months ago we started publishing data by firm on complaint
volumes. We believe that helped improve industry practice so we
are really pleased with the impact. It was quite difficult to
work out whether we even had the power within FSMA to do that.
We would welcome being able to be more transparent about what
we're seeing. Our legal advice is that would require a change
in FSMA and we would welcome that because our view is the more
we can expose what we are seeing in individual cases, the more
it would help everybody learn from what is going on.
We do talk very openly to the regulator about
what we see. One of the other issues I would flag that I hope
the new regulatory regime can address is the speed of acting on
that. This is not just about will. This is also about structural
processes for dealing with things. Where we have seen problems
in the regulatory regime are—for example we have talked
about payment protection insurance; we have talked about mortgage
endowments; bank charges are another example—where the time
lag from identifying a failure to resolving it has been too long
for all concerned. So consumer detriment has built up; industry
liability has built up. It has been frustrating for everybody.
I think getting that time lag down would be a key thing for us
to want to help achieve in the new regulatory regime.
Q208 David Rutley:
Thinking ahead then, what needs to happen to ensure that you,
within FOS, are going to be successful in the new structure? What
are the key things that need to happen there?
Ms Ceeney: Again
I would say transparency could be a key tool. As I said, we deal
with individual cases. We are not a regulator. We do not have
a policy role. We deal with individual cases. I think where we
can be helpful is making sure that we all learn from those cases
early, and I think transparency could play a key role in that.
I think another key role for us, which I hope we have played quite
successfully in the last decade but need to continue playing,
is making sure we do share our insight and learning with all the
players in the regulatory regime—whether it is FSA, the
soon-to-be CPMA, our colleagues in the compensation scheme and
the OFT—to make sure that we all are joining the dots where
we potentially see things going wrong early.
Q209 David Rutley:
It's all well and good talking about transparency and speed. Surely
if we are going to try and make this new structure work properly
there has to be some sort of escalation mechanism if you see something
going wrong. How is that going to work?
Ms Ceeney: We have
already started a new approach. We went out to consultation with
the FSA in March on the concept of a co-ordination committee between
us, the Office of Fair Trading and the FSA to make sure we were
sharing insights early. That has now started. We are hopeful that,
by making sure we all bring our learnings early—back to
the transparency point—I think the next step will be exploring
how open we are about what we all seeing because frankly I think
we need to create a culture where we all learn and we all learn
from things happening in a timely way so that detriment doesn't
build up.
Q210 David Rutley:
Again, it sounds good, but the problem with transparency and co-ordination,
they are interesting words but I think what people want is action.
I would have thought more work was required on how this escalation
mechanism could work. It is all well and good co-ordinating people's
views on a subject but if that isn't working and you believe passionately
that this isn't working for the consumer, how are you going to
ring the alarm bells?
Ms Ceeney: I entirely
agree with your challenge. I think it is a challenge for the regulator
as opposed to us.
David Rutley: Yes, but this is a chance
to start focusing on how we are going to change the regulatory
regime. This is the time to speak, based on your experience of
the last 10 years.
Ms Ceeney: That's
fair. From our perspective, we welcome the creation of a CPMA
that is particularly focused on consumer financial services, because
we think that should give a particular focus on these issues,
which in itself, if that focus is applied effectively, would help
things to be dealt with more effectively. But ultimately our role
is to flag issues. I would like us to be able to do that more
openly but what we really need is the regulatory infrastructure
to be able to pick that up and act on it quickly. That is something
I will do everything to help happen but ultimately I can't make
that happen because we are not the regulator.
Q211 David Rutley:
You've talked about CPMA. That will become the consumer champion.
How do you think you are going to be able to handle that relationship
with CPMA? What sort of bodies or discussion or dialogue needs
to be in place to make that successful?
Ms Ceeney: In a
way, the relationship we would have under the new legislation
as proposed with the CPMA is very similar to the relationship
we have with the FSA. The key to success there has been constant
regular dialogue; both at a sharing insight level plus, if we
see things going wrong, talking early around what is going on
in those cases and just dialogue at every level. It is absolutely
critical that we continue that with the CPMA.
Mr Boorman: Can
I just add one small point? I think it is quite an important point
from our perspective. Your question, sir, raised the CPMA as a
consumer champion and I understand Government's intent there but,
to be very clear, our role is not to be a consumer champion. We
are an important part of the safeguards set up in the FSMA structure
but our role is not consumer champion. One of our perhaps rather
esoteric concerns about a link with a CPMA that is a consumer
champion is to continually make that point, that our role is independent
of championing of consumer interests or championing of industry
interests.
Chair: I am very glad
you got around to making that point. I was getting nervous about
the earlier replies. John Mann.
Q212 John Mann: My
question is to the Financial Ombudsman Service. How accessible
is your service to all sections of the community and what documentation
have you published to demonstrate your research into that?
Ms Ceeney: We take
accessibility extremely seriously. I have our annual review in
front of us. We have a team that is dedicated to getting to sections
of the population who would otherwise find bureaucracies hard
to complain to. We work with a number of advice bodies, Citizens
Advice, Age UK—groups who would directly get to people.
We target disadvantaged sections of the population quite closely
so they know we are here. It is one of those challenges that I
think will be a perennial challenge. We need to keep doing more.
Q213 John Mann: My
question is: what documents have you produced to demonstrate that
you do that?
Ms Ceeney: I can
send the Committee the relevant pages in our annual review. We
take a section of our annual review that we publish every year,
which I can pass to you, which explains—
Q214 John Mann:
Yes, which we get. My question is not what you assert to do but
what research you've carried out and what you've published to
demonstrate how accessible your service is.
Ms Ceeney: Perhaps
it would be helpful if I dropped the Committee a note on those
details. We do have an awful lot of evidence. We do a lot of research.
So perhaps I could write to the Committee and explain some of
that.
Q215 John Mann:
I will ask in a different way then. Of the 200,000 complainants
coming to you, how many self-represent?
Ms Ceeney: The
vast majority.
Q216 John Mann:
Does that cause you concern?
Ms Ceeney: In what
sense?
John Mann: When the Legal
Complaints Service was taking tens of thousands of complaints
from what it, after many years, determined were vulnerable sections
of the community—vulnerable for example on literacy—what
it was able to ascertain was that 90% of the claims required representation.
Mr Boorman: If
I can help, I don't want to comment on other schemes which are
now well in the process of being abolished—
John Mann: No, but it
is an illustration of a large section of the community that would
not feel able to represent itself on financial matters to you
or indeed to many other people.
Mr Boorman: No,
indeed. And I think that is a serious and significant issue. Of
course, many of the people you are describing are part of the
financially excluded and, as part of the financially excluded,
they may not have the normal sort of complaints that many of the
rest of us do with their banks and insurance companies and so
on. We work closely with Citizens Advice and other advice agencies
to support them in their work of dealing locally with people in
financial difficulties and that's an important part of our work.
But we are a service that is based here in London and, therefore,
is, by definition, at the end of the telephone or at the end of
the post or email from people. There are certain sorts of face-to-face
services that I think it is always going to be difficult for us
to provide.
We are pleased about the fact that our average customer
base has become very closely related to the population as a whole.
One of the challenges for us is to understand what our typical
customer base should look like, given the ownership of financial
products. As you will see from our annual report, we do reflect
well both across the country and across socio-economic groups,
but I entirely accept there is a group of people who have particular
financial difficulties and needs and we may not be the best-placed
service to provide for them.
Q217 John Mann:
It would be useful if we could get a constituency or equivalent
breakdown of where you get your cases from.
Ms Ceeney: We do
have that in our annual review and I will drop that in a note
to the Committee.
Q218 John Mann:
My final question is, considering the current economic climate,
would you regard accessibility of vulnerable groups as being increasingly
or decreasingly important to your work?
Ms Ceeney: Without
doubt, increasingly and we are seeing that in our case load. For
example, over the last 12 months, we have seen a significant increase
in the number of cases coming to us of financial hardship, and
we have been working very closely with the consumer groups to
make sure if someone is in financial hardship we fast-track cases
and help consumer groups work with us to help consumers know how
to access those services. We have dedicated resources set up to
deal with those particular issues and absolutely they are increasing.
John Mann: Thank you.
Again, a letter just outlining that in a bit more detail would
be very helpful to the Committee.
Ms Ceeney: Yes,
happily.
Chair: Stewart Hosie.
Q219 Stewart Hosie:
You said earlier you get complaints across the financial services
sector. You identify the trends early, the issues early: an early
warning system. You said you do speak to the regulator. You say
you share this information but there was a clear frustration perhaps
about a lack of openness and perhaps all of the things that have
been learned weren't shared. What would you do or what could you
do to make sure there is more openness; to make sure that lessons
are learned more quickly? Your organisation first; what can you
do to make that better?
Ms Ceeney: I will
say some of the things we are doing and I will say some of the
things we'd like to be doing if we could use the opportunity of
this legislation. Some things we are doing; we have a team of
expert ombudsmen who, as well as looking at the most challenging
cases, are also essentially experts in their field. We use them
to draw out those lessons and talk a lot with industry. We work
with trade associations and we work with individual firms to really
draw together lessons we are learning, that may be evidenced in
one or two firms but may have wider industry implications, to
help industry learn. I know that is appreciated and we are committed
to try and do more and more of that work.
The big message I get back from everybody is, "Can
you share more of what you do?" I will come back to the transparency
point because FSMA limits how much we are allowed to do at the
moment because, for example, some of the decisions we publish
and some of the information we would give privately to the regulator,
it is questionable legally whether under FSMA we could put that
in the public domain. That is an area where we think it would
be helpful to industry to learn and to the regulator to identify
systemic issues early if we were able to put more of our work
in the public domain.
Q220 Stewart Hosie:
That sounds like a good pitch, to have the legislation changed
or toughened or new conditions to give you the protection you
need to have that information in the public domain. What else
could be done, not necessarily by your organisation but by all
the structures in the new regulatory protection framework, to
ensure the lessons are learned quickly and that, if there is a
requirement for new regulation or a different sort of supervision,
it's put in place quickly?
Mr Boorman: I think
we have been making some progress and I think there has been recognition
around the debate in the last Parliament about the amendments
to FSMA, which the present Government have started to introduce
some of. In particular, the introduction of the revised section
404 that provides a redress mechanism that the regulator can fire
if they see systemic problems that suggest there ought to be some
systematic answer to the question. In a way, that goes to a point
that was made earlier by the Committee about some of these large-scale
areas of dispute between customers and financial firms.
So I think ensuring that the regulator has strong,
flexible tools at their disposal that fit these particular requirements,
fit the requirements of cases where large numbers of customers
are expressing dissatisfaction and where there's debate and dispute
with financial firms about where liability lies. I think it's
important that we have a mechanism whereby the regulator can intervene.
Because the only alternative to that, the alternative that our
service has had to live with over the last 10 years, is that customers
individually, where they are able to, have to bring their cases
to the financial firm, which may dispute the issue strongly, and
if they are dissatisfied, to bring their case to us. As you know,
they've done so in a million over the last 10 years; so good and
relevant powers for the regulator, I think, are a critical part
of this feature.
If I may, I think there's also a point for industry
and consumer groups to play a role in this debate. It's not just
for regulators or a quasi-judicial service such as ourselves to
contribute. I think there is something for financial firms, for
customer groups, to draw to the attention of the regulatory authorities
where things may be going wrong. I think one of the issues in
the past has been that that feedback, from the industry to the
regulator, hasn't always been as open and clear as it might be
on other issues.
Q221 Stewart Hosie:
In terms of the good and relevant powers to the regulator, which
is sensible, could you provide the Committee—not today,
necessarily—with your idea of what those powers might be?
Would you be able to do that for us?
Mr Boorman: Yes,
as I say, and I think certainly section 404 amendments that the
Government have put in place are a very important start, but let
us come back to that question.
Q222 Stewart Hosie:
To ask Mark and David, just on the FSCS—because we heard
a bit about "systemic" there and obviously you, in a
sense, pick up pieces if there is a problem with the work you
do—you'll be expected to work very closely with the PRA
in the new structure now. Have you any concerns at all about how
that will work, about transparency and about the appropriate sharing
of information? Where do you think that will go and how would
the relationship work?
Mr Hall: As you
know, the proposal is that we should be directly accountable to
the CPMA but having strong links with the PRA. We think, in some
ways, we would like to go a step further in our relationship with
the PRA and have a more formal accountability to the PRA because,
as you know, at the moment we have an accountability to the Bank
of England to advise it on payout as one of the resolution options.
That is an accountability we have now, so under the new regime
to make that a formal accountability to the PRA seems to us to
make some sense. So we would advocate that we both have formal
accountability to the CPMA and formal accountability to the PRA.
That could involve them appointing board members to us; it could
involve us reporting to them, however often—
Q223 Stewart Hosie:
What is the reason that that structure hasn't been set up or what
reasons have been given for not having that formal relationship?
Mr Hall: I think
it's just the state of the debate. I think when the proposals
came forward about splitting the FSA the way they did, the bulk
of our peacetime work, if you like, points us in the direction
of the CPMA; the failure of intermediaries and us paying compensation
to the customers of those intermediaries. But obviously, in the
autumn of 2008, a large part of our interactions were with the
Bank of England and the Treasury, as well as the FSA, and it was
recognised in the consultation document that that link was very
important. I think we suggest it's worth thinking about, whether
we just push that further and formalise it some more, because
there are some mutual accountabilities here. Just as we need to
be accountable to the PRA and the CPMA, so we need the PRA to
ensure that the industry has the databases—the single-customer
view, as we've described—in such a position so that we can
meet the seven day aspiration for payout. We can't do that as
the FSCS. We will be relying on the PRA to enable us to get access
to the institutions to familiarise ourselves with their databases
and familiarise ourselves with their systems. So, in a sense,
they need to be accountable to us for that. So we see mechanisms
of a mutual accountability with the PRA and the CPMA.
Q224 Stewart Hosie:
I presume you are continuing to make that case?
Mr Hall: Yes, we
are.
Q225 Chair: Have
you set that out in writing?
Mr Hall: We have,
yes. It is part of our response to the consultation document,
which I think closes on 18 October. It closes on Monday. We have
written to the Treasury with that argument, essentially.
Q226 Chair: I think
it would be helpful for the Committee to have your considered
firm view with all the pros and cons of having two compensation
schemes as well.
Mr Hall: Yes. That's
a slightly separate question, Chairman.
Chair: Yes.
Mr Hall: Shall
I comment on that now?
Q227 Chair: If you have
firm, developed views, otherwise drop it to us in writing. But
I think it's an important issue for us to examine.
Mr Hall: No, we
do have firm views on that. I think the first point is that, in
a sense, we already operate a number of different compensation
schemes—a deposit scheme, an investment scheme, an intermediary
scheme, and so on—and have done since FSMA in 2000. I think
there are at least three key arguments why we believe a unitary
scheme makes sense. The first one relates to the consumer, i.e.
under one scheme the consumer will have one point of interface,
which is us. In an industry in which many providers compete across
a number of different product lines, if there is a failure in
dealing with more than one compensation scheme, it raises complexities
and hand-off issues, which we think could be avoided by having
a single interface.
Secondly, there is the question of the industry interface.
The industry at the moment has one compensation scheme that it
can interact with as opposed to two. I think, thirdly, there is
the question of critical mass and scale that you get under one
scheme. So in the autumn of 2008, because we had critical mass
in IT skills, data management skills, outsourcing arrangements,
legal skills and communication critical mass, we were able to
scale up very rapidly to deal with the crisis of the major banking
defaults within the institution that we have. If you're going
to separate all that out, I don't think you have that critical
mass in order to deal with the wide fluctuations that we see in
our business.
Q228 Chair: Have
you set all this out in your response as well?
Mr Hall: Yes, we
have. We have. Yes.
Q229 Chair: I think it
would be very helpful for us if we could have that, with the full
pros and cons of each, so that we have your view clearly on it.
Mr Hall: Yes.
Chair: John Thurso.
Q230 John Thurso:
Can I just go back briefly to this question of the consumer champion?
One of the weaknesses in the FSA was recognised to be the fact
that the consumer side didn't get perhaps enough prominence. CPMA
has been labelled as being a consumer champion. But Angela Knight
gave us evidence that the BBA is extremely worried about that.
There's evidence we've had from the stock exchange, and various
others, on those lines and there seems to be a tension there.
Angela helpfully suggested it should be Consumer Focus, which
we now understand is vanishing today. Is there a danger, once
again, that the consumer is going to be left out and are you not,
by default, going to be dragged into becoming more of a champion?
Ms Ceeney: To echo
what my colleague said earlier, we have also expressed concerns
about the labelling of the CPMA as a consumer champion for the
reasons we've expressed. We work very hard to be impartial. So
we do look at every case on its merits. In fact last year we decided
50% of cases in favour of the consumer and 50% in favour of industry,
which I think demonstrates that impartial role. One issue we do
experience is obviously industry is well-established and has effective
lobbying powers. We would expect that of a well-run industry.
By contrast, when we deal with some consumer groups they are often
very stretched and pretty under-resourced. But I think we're keen
to say that is absolutely not our role and—whatever happens
in the environment around us—we must not become a consumer
champion, and are adamant we are not now and have no intention
of being. But I think the reservation about making sure that somebody
is is important. Our view, though, would be it shouldn't be the
regulator.
Q231 John Thurso:
In your written evidence, you noted the dividing lines between
traditional financial services and other retail markets are blurring
and that there may be scope to simplify and improve access to
redress. Do you see the FOS doing that or are we looking for another
super-ombudsman?
Ms Ceeney: It's
a good question. Over the last 10 years we've been in existence
our jurisdiction has gradually increased. So, for example, three
years ago we took on responsibility for consumer credit. I think
those moves have all been very sensible because if you put yourself
in a consumer's shoes it's about financial services. So, whether
it's a credit card issued by this firm or this or a loan issued
by this firm or this, the average consumer doesn't think, "Well,
who is the regulator?" They think, "It's about financial
services, isn't it?" So I think a very helpful development
over the last decade has been that our jurisdiction has covered
financial services as that has grown. The boundaries of any jurisdiction
are always challenging. So a good example would be as supermarkets
go into financial services, consumers can get quite confused about
who deals with what.
House buying is another very interesting one. So
we might be an ombudsman for the mortgage but if you're complaining
against the estate agent you would go to another ombudsman and
the removal firm, you'd go to another ombudsman. So, from a consumer's
perspective, that's challenging. We're certainly not in the market
of trying to bid for new things. I think we're keen, though, to
make sure that consumers have a simple message about where they
turn. But at the moment the message is pretty clear; if it's anything
to do with financial services you can go to the ombudsman. There
are edges that I think we should constantly keep under review,
but I think it does make sense to say there's an ombudsman for
financial services.
Q232 John Thurso:
Okay, thank you. Can I turn to the FSCS? Mark, nice to see you
in your new role.
Mr Neale: It's
nice to be back.
John Thurso: You're still
in the honeymoon period. What do you seek to achieve in your time
as Chief Executive?
Mr Neale: I'm very
lucky to have joined an extremely effective organisation with
people who are strongly committed to providing a good service
to consumers, but I think we're all very conscious of the need,
significantly, to enhance our capability for the future. The financial
crisis has shown that we do need to be able to respond very quickly
to significant increases in the workload that we face. So what
we're seeking to do is both to improve the service we provide
to consumers on a day-to-day basis, because clearly financial
businesses will fail even in good times, but also to lay the foundations
and the capabilities that would serve us if we had to respond
again to a major failure. That reflects the point that David was
making about the organisation having accountabilities, both to
the CPMA and to the PRA and the Bank of England.
Q233 John Thurso:
Mr Hall, if I could ask you, you made a statement—and I'm
not sure whether you were describing Mark or the whole organisation—you
said you would be central to developing an even stronger focus
on consumers. I assume that was the organisation. Given the FSCS
was set up by statute, what exactly did you mean by that?
Mr Hall: Well,
I think that we have to be very clear that our primary stakeholder,
if you like, is the legitimate claimant. That's what we were set
up to serve. The events of the autumn of 2008 have raised the
bar, in terms of what we need to be able to do. For example, the
seven-day payout aspiration is an enormous task, for both the
industry to put together its data files in a way that we can then
validate and the mechanisms for paying out in that period. It
is an enormous challenge. So in terms of also helping financial
stability, the fact that we can pay out in that aspirational time
will help stability because it will, hopefully, help confidence.
But the fact that we can then do it for the deposit takers means
that we need to raise the bar on all the other product categories,
in terms of how rapidly we respond and how effectively we respond
to claimants. So, whereas we got through the autumn of 2008, the
bar has been raised, which is going to require some investment
on our part—enhancement of management team and significant
investment in IT systems—in order to be able to meet that
sort of higher bar, if you like.
Q234 John Thurso:
Is there anything in this restructuring that's going on in regulation
that you feel is either detrimental to you or there is an opportunity?
Is there anything that's being missed that we ought to be looking
at that could help you?
Mr Hall: I think
there are a couple of things that we think are very important
for us to have the right mechanisms in place to accomplish. One
of them would be more effective contingency planning than we've
had in the past. I think there's a broad agreement among the authorities
that that is indeed something that needs to be done. I think it's
fair to say that some of the contingency planning in the past
has resulted in a happy ending, if you like, as opposed to an
unhappy ending that would involve us. I think there's a considerable
appetite, on behalf of the authorities, to get involved in more
frequent contingency planning and the EU legislation, which was
referred to earlier, is asking for that. So I think that's one
key aspect. Related to that—I think it was mentioned earlier
by Natalie—we need to create better gateways for information
sharing, so we get to a point of it not being a signal of a crisis
if the FSCS is seen talking to a banking institution, which creates
all sorts of concerns as you can imagine. But if we can somehow
create an environment whereby it is normal for us to be involved
in stress-testing different institutions' capabilities in order
to deliver a payout, then that's another key thing that we need
to build into the new structure.
Mr Neale: Can I
add to that? I think there are two things that it's very important
that we retain in the new world. One is our independence. I think
it is an important assurance, both for consumers and for the industry,
that we reach independent judgments about whether compensation
should be awarded or not. The other thing I think it's very important
that we retain is our critical mass as a single organisation.
My confidence that we can do all the jobs that we have to do,
and provide a good responsive service to consumers across the
range of services, does depend on keeping the organisation together,
so that we can deploy the skills and expertise we have across
the full range of services that we provide. So although we would
be very relaxed about running separate services for deposits,
insurance and investment, I think it is very important that underpinning
those separate services is the critical mass of the current organisation.
John Thurso: Thank you
very much indeed.
Chair: Thank you very much for coming
to see us today. We recognise that an hour is not very long in
order to cover such a huge range of subjects, but we would be
grateful for anything you feel you should have brought to our
attention in writing. A number of areas have been raised today,
which the Clerks will be in touch with you about. Thank you very
much for what I think one of you described as "the careful
frankness" with which you've delivered your evidence this
morning.
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