As 2006 drew to a close, the Financial Services Authority (FSA) issued an enforcement notice that cancelled the permission of a sole trader IFA, David Bennett. This did not hit the headlines as other high profile enforcements can tend to do. However, the reasons why the notice was issued does have a great deal of relevance to the subject of the Financial Ombudsman Service (FOS). The individual in question failed to satisfy the FSA’s threshold condition five (suitability) and failed to comply with principle six (customers’ interests). Specifically he failed to comply with an award made by the FOS.
This small event was simply a drop in the ocean of the vast amount of activity undertaken by both the FSA and FOS, but it does show that proper complaints handling, as set out in the DISP section of the FSA’s handbook, is taken very seriously and that no authorised person can ignore the ultimate decision made on a dispute by the FOS and expect to get away with it. It also serves as a reminder that the whole force of FSA regulation and FOS activity is directed towards consumer protection – a point that may sometimes get lost in the day-to-day routine of compliance.
Looking at DISP
Before looking at the workings of the FOS itself, and how it provides redress for financial services consumers with a grievance, it’s worthwhile looking briefly at what DISP says we must do about customer complaints. After all, the Ombudsman can only get involved if a regulated firm fails to resolve a customer dispute, so if we can clear up our own disputes effectively then we need never have to get involved with the FOS.
DISP covers what constitutes a complaint, and how it must be dealt with, logged and reported. A complaint is made up of any expression of dissatisfaction – not just those made in writing – so phone calls or face-to-face complaints need to be taken just as seriously as a letter or e-mail, and customer-facing staff must be trained to receive complaints.
Firms must give customers clear information about their complaints handling procedure at an early stage in the sales process – so a complaints booklet or leaflet needs to be produced to hand to potential customers and also to complainants immediately a complaint has been received or when a client asks for it. Firms must have written complaint-handling procedures in place that enable customers to make complaints by any reasonable means and the complaints must be handled according to the DISP rules, whether or not the firm
believes the complaint to be valid. A compliant complaints procedure must ensure that the complaint is handled by a competent employee who is not connected with the original substance of the complaint, unless a sole trader; that the final response is handled by someone with authority to settle the complaint and offer redress; and that the response must address the complaint adequately.
Time limits are statutory: first the complaint must be logged and, if not resolved by close of business the following day, written acknowledgement must follow within five working days with a final or holding response to follow in four weeks. If no resolution has been reached in eight weeks, the customer must be notified that they can refer to the FOS. Record-keeping is obligatory, and records must be retained for three years, apart from those settled by the end of the next working day; although it is often good practice also to record these quickly-settled complaints for future reference and learning opportunities.
Resolving the dispute
Once a dissatisfied customer has decided to refer his or her unresolved dispute to the Ombudsman, a process of dispute-resolution is started, with the FOS acting as an impartial and confidential arbitrator, much as a judge would, if the complaint had been taken to court instead of to the FOS. To initiate the FOS getting involved, the consumer must fill in a complaint form, sign it and send it in by post. No complaints will be accepted by the FOS unless the complaint has already been submitted to the firm in question and the firm has sent the complainant a final response, or at least eight weeks has elapsed with no final response being issued. Using the services of FOS is free for consumers, as FOS is funded by the industry through levies and case fees.
The first stage in the FOS process is to see if it can help the complainant and the firm settle matters informally. Having taken a fresh look at the facts of the case, the FOS will tell the consumer and the firm how it thinks they could reach agreement. If this is not possible, then FOS requests further information and decides whether or not the firm has treated the customer fairly. If the decision is that the firm has acted fairly, then it is still open to the complainant to resort to the courts for satisfaction. If, however, it is found that the firm has acted unfairly, the FOS will tell it to make good the consumer’s losses so that they are in the position they would have been before things started to go wrong. Firms must accept the FOS’ decisions, which are binding up to a total of £100,000, although in most cases decisions involve much smaller amounts. If they do not they risk having their FSA permissions withdrawn.
Communication
As an organisation, the FOS is an excellent communicator and publishes a wealth of information about itself and the way it works. Two of its key publications in 2006 were its Annual Review (31 March 2006) and its Corporate Plan and 2006/7 Budget in August. In the Annual Review, there are some statistics that show how substantial the FOS’s operations are. With a £53 million operating budget and a staff of 1,000, the FOS handled nearly 673,000 initial enquiries and complaints in the year to 31 March 06, of which one-in-six turned into cases requiring the involvement of its adjudicators and ombudsmen. There were 69,000 new mortgage endowment complaints during that year – more than 250 cases each working day – and half the total number of cases handled by the FOS related to 12 of the UK’s largest financial services groups. As a measure of its successful problem-solving approach, 93 per cent of cases were resolved by the FOS informally, through mediation and recommended settlements, without the need for a formal decision.
With regard to the split of complaints across financial services sectors, it is heartening to note that only 3.5 per cent related to mortgage products, as opposed to 61 per cent relating to mortgage endowments.
While the Annual Report is a review of the last 12 months, the Corporate Plan looks forward and shares with its stakeholders the FOS’ agenda for the next three years. Among the items covered in this agenda are plans to deal with the sustained high level of mortgage endowment cases; a strategy to recruit, train and retain a high quality workforce; a sustained effort towards quality control; innovation and improvements in case-handling processes; and planning for ‘next generation’ information and telephony systems.
Looking forward to the sort of levels of new enquires that can be expected, due to an anticipated fall in mortgage endowment complaints over time, the estimate of total complaint numbers for 2007/08 is 87,500, as opposed to an actual total of 110, 963 in 2004/05. The amount of mortgage complaints budgeted for in 2006/07 is 4,000 – still only 3.8 per cent of the total.
Airing current topics
Finally on the subject of FOS publications, a newsletter is regularly issued that airs current topics of interest including issues discussed at seminars and roadshows, the different types of complaints being received and anonymous case studies across all financial services sectors showing the circumstances of how and why different complaints were upheld or rejected. Back copies of the newsletter are downloadable from the FOS’ website and readers may find issue number 55, August 2006, of particular interest as the case studies included in it relate to complaints against mortgage intermediaries and advisers.
Although we cannot do much about paying the FOS levy, we, as an industry, can certainly keep our FOS caseload fees down to as near zero as possible by operating robust and responsive complaints-handling procedures within our businesses; maintaining an open attitude and striving for dispute resolution rather than confrontation; and, of course, treating all our customers fairly, first time, every time.
Ends
