Financial Ombudsman Service Complaints System - Getting a handle on complaints

Complaints about firms authorised by the Financial Services Authority to carry on general insurance intermediation activities will now fall within the compulsory jurisdiction of the Financial Ombudsman Service.

This is an automatic consequence of FSA authorisation. Firms do not have to apply to join the FOS, but nor can any firm authorised by the FSA that conducts business with eligible complainants opt out.

The FOS is an independent organisation, set up under the Financial Services and Markets Act 2000 to resolve individual disputes between consumers and financial firms quickly and with minimum formality. While the government is responsible for the overall scope of the scheme and, although the ombudsman service is a statutory scheme, the dispute resolution process remains private between the parties.

The FOS replaced a number of former complaints-handling schemes including the Banking Ombudsman, Building Societies Ombudsman, Insurance Ombudsman and the Personal Investment Authority Ombudsman. It received its full legal powers on 1 December 2001.

Soon afterwards, the government announced that the FSA would regulate mortgage and general insurance advice and that intermediaries in these sectors would become part of the compulsory jurisdiction of the FOS. These extensions to its jurisdiction came to fruition on 31 October 2004 and on 14 January 2005, respectively.

Receipt of complaints

What should a firm do if it receives a complaint? The FOS can get involved in a complaint only after the firm concerned has had the opportunity of addressing and resolving it. If a consumer contacts the FOS before the firm has had the opportunity to put things right, the customer contact division will refer the complaint on to that firm. Whether a firm is notified of a complaint directly by its customer or by the FOS, it should investigate the complaint and decide how it wants to respond to it. The vast majority of complaints are resolved at this stage and are never considered by the ombudsman service. Last year (ended 31 March 2004), the ombudsman service received 548,338 front-line enquiries from consumers, of which only 97,901 went on to become ombudsman cases.

Under the complaint-handling rules laid down by the FSA, firms are allowed up to eight weeks from the date the complaint was received anywhere within the firm to send the customer a final response or to send the customer an explanation of why it is unable to do this.

Unless the firm concerned has already issued its final response, the ombudsman has no power to consider a complaint until this period has elapsed.

These rules - and all the other rules relating to complaints handling, including other relevant time limits for handling complaints - are set out in the Dispute Resolution: Complaints section of the FSA Handbook and can be found on the FSA's website at: www.fsa.gov.uk/vhb/html/disp/disptoc.html

A firm must also send the consumer the ombudsman service's contact details with a copy of the leaflet Your Complaint and the Ombudsman. To order supplies of the leaflet, complete the order form on the publications page of the ombudsman service website - www.financial-ombudsman.org.uk - or telephone 020 7964 0370 for an order form.

So, how does the FOS deal with complaints? If the consumer remains dissatisfied after the firm has sent its final response, or the eight weeks have passed, the consumer can refer the complaint to the ombudsman. Unless the firm does not object, the complainant has to refer the complaint to the FOS within six months of the firm's final response.

The aim is to resolve complaints at the earliest possible opportunity where it is fair and correct to do so, as this has benefits for all the parties involved. This is done in accordance with what is fair and reasonable in all the circumstances, taking into account relevant law, codes of practice and regulatory rules and guidance in place at the relevant time.

The exact stages a complaint will go through will depend on the facts and merits of the case. However, throughout the process, the ombudsman will make clear the grounds on which it has reached a view or decision and provide the parties in dispute with the opportunity to put forward their arguments.

At the outset, the FOS takes a fresh look at the facts to see if the complaint can be resolved informally. This will generally involve mediation or conciliation, usually by telephone. Last year, 42% of cases were resolved informally at this early stage of the process.

If the FOS is unable to resolve the matter over the telephone or if the nature of the complaint means that a written explanation is more appropriate, an adjudicator will confirm this in writing. In more complex cases, which require a more detailed investigation, it will issue an adjudication report.

This is a formal document that sets out the findings of an adjudicator and details any redress the adjudicator considers appropriate. The report is sent to both parties who are given the opportunity to respond.

In 2003, 50% of the cases resolved by the ombudsman were resolved following an adjudication. Only 8% of cases went on to the next and final stage in the FOS process - a final decision by an ombudsman. If the consumer accepts the ombudsman's decision, both the consumer and the firm are legally bound by it. If the consumer does not accept the decision, it is not binding on either party. The consumer remains free to take the matter to court.

Funding

There are some exceptions but, in general terms, the ombudsman service is funded by a combination of annual levies and case fees. In brief, each industry sector is placed in a separate funding block and the levy is based on an estimate of what it costs to deal with the complaints that arise from that sector.

There is a minimum levy in each industry block with no maximum. The FSA consults annually on the tariff rate applicable to each industry block and it calculates and collects the levy. The FOS sets the case fee and consults on it each year, usually in January. There are two types of case fees - standard case fees and special case fees. The standard case fee in 2004/05 was £360. Special case fees apply when, for various reasons, firms are not required to pay the general levy or where the complaint has been made by eligible complainants that are small businesses, charities or trustees.

The FOS issues invoices for case fees at the end of the month in which the complaint is closed. For firms that pay the annual levy, the first two cases closed by the ombudsman service in any financial year are free.

A case fee is charged for the third and subsequent case for each firm.

Although they will be covered from 14 January 2005, most general insurance brokers will not have to pay anything towards the FOS from then until 31 March 2005. There will be no levy or joining fee. The first two cases against any firm will be free. In the unlikely event that a firm has any cases referred to the ombudsman in this short period, a special case fee of £550 will apply but only to the third and subsequent case closed against an individual firm in the period.

Going forward, how much each firm will pay will depend on the size of the firm and how many complaints it receives. Insurance intermediaries will be charged an annual levy plus the relevant case fee for the third and subsequent cases closed in any financial year. Most small firms may well find the only ombudsman-related cost they have each year is the minimum levy (as an example, the minimum levy for small independent financial advisers in 2004/05 is £75.) Last year, 80% of the firms covered had no complaints referred to the FOS. Of the firms that did have cases, nearly half had only one or two complaints and would therefore not be charged a case fee.

The FOS is not expecting a significant increase in the number of cases referred to the ombudsman as a result of the extension of its jurisdiction to cover insurance brokers, but will see a large number of new firms covered by the service for the first time. These new firms will include both mainstream brokers and secondary intermediaries whose main business is not insurance, such as vets, dentists and motor traders.

The FOS is committed to working closely with these new firms through specialist services and events. These include a dedicated advice desk and publications, and the FOS has recently completed its third nationwide series of drop-in events aimed at intermediaries. The events, attendance of which has been high, provide an opportunity to meet ombudsman service staff and ask questions. The FOS plans to hold further regional events in the future.

- This article is not intended as a legal guide to the rules of the FOS. The rules are published by the FSA and can be found in the Complaints Sourcebook, which, together with the Compensation Sourcebook, makes up Block 4 - Redress of the FSA's Handbook of Rules and Guidance.

HELP AND INFORMATION AVAILABLE TO FIRMS

- Technical advice desk provides firms with information about how the ombudsman service works and gives informal guidance on complaints-handling issues. Contact 020 7964 1400 or technical.advice@financial-ombudsman.org.uk

- The external liaison team organises and speaks at seminars, workshops and conferences and can arrange to visit firms and provide training for complaints handlers. See website for details of the latest events or contact the advice desk to request a visit.

- Ombudsman News is a regular publication containing articles and case studies explaining the ombudsman's approach to case-handling issues.

- Website www.financial-ombudsman.org.uk Special web page for firms: www.financial-ombudsman.org.uk/faq/firms.htm

Source: Financial Ombudsman Service

FREQUENTLY ASKED QUESTIONS

- Who can complain to the Financial Ombudsman Service? Complaints must be made by or on behalf of eligible complainants (Rule 2.4, Dispute Resolution: Complaints, FSA Handbook of Rules and Guidance), essentially, customers or potential customers who are private individuals, businesses with a group annual turnover of under £1m, charities with a yearly income of under £1m and trusts with net assets of under £1m. In some circumstances the service can also consider complaints from those that are neither direct customers nor potential customers, such as employees covered by a group insurance policy held in the name of their employer.

- What is a final response? This is a firm's full response to a complaint and the term is defined in the glossary of the FSA Handbook. In basic terms, a final response should give a summary of the complaint, setting out the firm's view and the outcome of its investigation, state whether the firm acknowledges there has been any fault on its part, give details of any offer the firm is making to settle the complaint and tell the customer about their right to refer the dispute to the ombudsman service and that they must do so within six months if they are not satisfied with the firm's response.