Financial Services and Markets Appendices to the Minutes of Evidence


Memorandum by the Financial Services Ombudsmen[6]

  1. We are grateful for the opportunity to offer some brief observations to the Committee as it considers the draft Bill.

  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.

Minimising formality

  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.

Scheme coverage

  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

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