Alternative dispute
resolution of financial
complaints in the UK
Walter Merricks
chief ombudsman
David Thomas
corporate director and principal ombudsman
Financial Ombudsman Service
UK =
United Kingdom of
Great Britain and
Northern Ireland
England, Wales, Scotland
and Northern Ireland

60 million people

£1 = ¥200

Firm = financial business
where we fit in …
Financial Services Authority
(the regulator)
Financial Ombudsman Service
(adjudicates on unresolved disputes)
Financial Services
Compensation Scheme
Financial Services Authority (FSA)

makes and polices the rules

supervises financial firms

prudential regulation

conduct-of-business

some self-regulation through codes
Financial Ombudsman Service (FOS)

resolves individual disputes

an alternative to the civil courts

informal / quicker / cheaper

not a regulator

some decisions can have big effect
Financial Services
Compensation Scheme (FSCS)

safety net

claims against ‘dead’ firms

contributions from ‘live’ firms
Ombudsmen …
Characteristics …

citizen/consumer v state/institution

deal with unresolved disputes

free to citizen/consumer

flexible and informal processes

investigative procedure
… characteristics

wider dialogue

encouraging complaint resolution

encouraging complaint prevention
Public sector ombudsmen
 1967: Parliamentary ombudsman
 1973: Health service ombudsman
 1975: Local government ombudsman
1981: Insurance Ombudsman






established by industry voluntarily
in partnership with consumer bodies
independent council
alternative to civil courts
but redress beyond the law
binding on firm, but not consumer
Other financial ombudsmen

Banking Ombudsman

Building Societies Ombudsman

Investment [Management] Ombudsman

Personal Investment Ombudsman
FOS established by law …
‘a scheme under which
certain disputes may be
resolved quickly and with
minimum formality’
Disadvantages
compared with courts


centralised
cannot cover third parties
Advantages over courts







free to customer
draw line for firm
specialist knowledge
informal
we mediate
we investigate
fair in the circumstances
Who we cover …
26,000 financial firms …






banks
building societies (mortgage banks)
other mortgage lenders
mortgage intermediaries
credit unions
electronic money institutions
… 26,000 financial firms …





insurance companies
insurance intermediaries
investment/pension companies
investment/pension advisers
stockbrokers
… for these activities …




taking deposits, lending money and
providing credit/debit/cash cards
providing, arranging or advising on
mortgages
providing, arranging or advising on
investments/pensions
providing, arranging or advising on
insurance
… if they are provided


in the UK
from the UK
We cover business done from
all UK branches of:
 UK firms
 Foreign firms
We do not cover business done from
non-UK branches:
 even of UK firms
Complainants covered
Customers, potential customers
and some others





individual
business (< ¥200 million turnover)
charity (< ¥200 million income)
trust
(< ¥200 million assets)
from UK and world-wide
Complaint process …
Complainants heard
about us from:





the firm
the press
our literature
friend/relative
advice centre
29%
28%
13%
10%
7%
If complainant comes to FOS
and has not complained to firm
FOS
 refers complaint to firm
 issues complaint form
 awaits complainant contact
What
complaint
unless
resolved
by close
of next
business
day
requires firms to do about complaints
5 business days
written
acknowledgement and
recorded
as complaint
4 weeks
written
response –
final or
holding
8 weeks
written
response –
final
ombudsman
referral
rights
Time limits




after final response letter or
8 weeks (if sooner)
6 months from
final response letter
6 years from event or 3 years
from knowledge (if later)
we can waive time limits
in exceptional circumstances
phone
enquiries
sift and
respond
written
enquiries
to
casework
cases
case
termination/mediation
by adjudicator
42%
initial decision
by adjudicator
50%
final decision
by ombudsman
8%
Termination by adjudicator
no reasonable prospect of success
 no loss/material inconvenience
 fair settlement on offer
 court has dealt with merits
 more suitable for court
 legitimate commercial judgment
[can ask for review by ombudsman]

Mediation by adjudicator

evaluative mediation

by agreement
Initial decision by adjudicator
initial view
 (paper) investigation
 power to compel evidence
 adjudication
[can ask for review by ombudsman]

Review by ombudsman (‘appeal’)







request by either side
additional evidence/arguments
possible hearing (rare)
ombudsman’s final decision
if customer accepts, both bound
otherwise, neither is bound
[possibility of judicial review]
We decide what is fair in the
circumstances of that case
taking into account





law
regulations
regulator’s rules
relevant codes
good industry practice
Outcome of cases

In about 35% of cases on average
we agree with the complainant

But that reflects rates of 15% to 80%
depending on firm and product

In about half the cases where we agree
with the firm, it had not explained
properly to the complainant
Redress …
Remedy
Generally, our aim is to put the
complainant in the position they would
have been in if the firm had not done
something wrong
We can make the firm



pay compensation up to ¥20 million
pay interest
pay costs (rare)
We can recommend more than
¥20 million, but the excess is not binding
Additionally, or alternatively,
we can make the firm
take ‘appropriate’ action
This might be to put something right,
reconsider an application
or simply to apologise
We cannot make the firm

compensate other customers
in similar circumstances

change its products,
procedures or staff
Complying with awards
a firm must comply promptly with any
award made by the ombudsman
 a complainant may enforce a money
award or direction in the law courts

Workload …
phone
enquiries
(330, 000)
total
enquiries
(615,000)
to
casework
written
enquiries
(285, 000)
year ended 31 March 2005 …
Enquiries to
cases
(111, 000)
mortgage endowments
current inflow …
general insurance
banking and mortgages
securities
other investments
pensions
number of new cases
120,000
100,000
80,000
60,000
40,000
20,000
0
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08

>50% of complaints are about
the 11 largest groups
 >15% of complaints are about
the 20 next largest groups
 <35% of complaints are about
the other 22,000 firms
Resources …
Staffing
 1 chief ombudsman



2 principal ombudsmen
27 ombudsmen
1,000 other staff
Cost per case
160,000
140,000
120,000
¥
100,000
80,000
60,000
40,000
20,000
0
2000/01
2001/02
2002/03
2003/04
Business Years
2004/05
2005/06
Cost

free to consumer

average cost of case = < ¥100,000

firms pay yearly levy (25% of cost)

firms pay case fee (75% of cost)
Yearly levy
based on market share



bank pays ¥1
for every 2 bank accounts
insurance company pays ¥1
for every ¥100 of premiums
small intermediary pays ¥10,000
Case fee



¥72,000 fee per case
but first two cases per year are free
only 7% of 26,000 firms
covered pay case fees
11 largest groups pay
>50% of case fees
Information …
consumer enquiries 0845 080 1800
enquiries@financial-ombudsman.org.uk
technical advice
020 7964 1400
technical.advice@financial-ombudsman.org.uk
publications
020 7964 0092
publications@financial-ombudsman.org.uk
public website
http://www.financial-ombudsman.org.uk
Europe …
EUROPEAN UNION (EU)
Austria, Belgium, Cyprus, Czech Republic,
Denmark, Estonia, Finland, France, Germany,
Greece, Hungary, Ireland, Italy, Latvia,
Lithuania, Luxembourg, Malta, Netherlands,
Poland, Portugal, Slovakia, Slovenia,
Spain, Sweden and United Kingdom
EUROPEAN UNION (EU)
Austria, Belgium, Cyprus, Czech Republic,
Denmark, Estonia, Finland, France, Germany,
Greece, Hungary, Ireland, Italy, Latvia,
Lithuania, Luxembourg, Malta, Netherlands,
Poland, Portugal, Slovakia, Slovenia,
Spain, Sweden, United Kingdom
EUROPEAN ECONOMIC AREA (EEA)
European Union plus
Iceland, Liechtenstein and Norway
EEA ‘passport’ rights
Financial firms authorised in one EEA
member state can provide services in or
into any other EEA member state
For example –
UK-based internet bank directed at Spain
and working in Spanish
FIN-NET

financial redress body network

refer cross-border complaints

advise on local law

meet six-monthly
http://europa.eu.int/comm/internal_market/finservicesretail/finnet/index_en.htm
1998 European recommendation
on principles for redress bodies

transparency

legality

due process

effectiveness

independence
Alternative dispute
resolution of financial
complaints in the UK
Walter Merricks
chief ombudsman
David Thomas
corporate director and principal ombudsman
Financial Ombudsman Service