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Alternative dispute resolution of financial complaints in the UK Walter Merricks chief ombudsman David Thomas corpora

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

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Alternative dispute resolution of financial complaints in the UK Walter Merricks chief ombudsman David Thomas corpora

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  1. Alternative dispute resolution of financial complaints in the UK Walter Merricks chief ombudsman David Thomas corporate director and principal ombudsman Financial Ombudsman Service

  2. UK = United Kingdom of Great Britain and Northern Ireland England, Wales, Scotland and Northern Ireland

  3. 60 million people • £1 = ¥200 • Firm = financial business

  4. Financial Services Authority (the regulator) Financial Ombudsman Service (adjudicates on unresolved disputes) Financial Services Compensation Scheme where we fit in …

  5. Financial Services Authority (FSA) • makes and polices the rules • supervises financial firms • prudential regulation • conduct-of-business • some self-regulation through codes

  6. 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

  7. Financial Services Compensation Scheme (FSCS) • safety net • claims against ‘dead’ firms • contributions from ‘live’ firms

  8. Ombudsmen …

  9. Characteristics … • citizen/consumer v state/institution • deal with unresolved disputes • free to citizen/consumer • flexible and informal processes • investigative procedure

  10. … characteristics • wider dialogue • encouraging complaint resolution • encouraging complaint prevention

  11. Public sector ombudsmen • 1967: Parliamentary ombudsman • 1973: Health service ombudsman • 1975: Local government ombudsman

  12. 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

  13. Other financial ombudsmen • Banking Ombudsman • Building Societies Ombudsman • Investment [Management] Ombudsman • Personal Investment Ombudsman

  14. FOS established by law … ‘a scheme under whichcertain disputes may be resolved quickly and with minimum formality’

  15. Disadvantagescompared with courts • centralised • cannot cover third parties

  16. Advantages over courts • free to customer • draw line for firm • specialist knowledge • informal • we mediate • we investigate • fair in the circumstances

  17. Who we cover …

  18. 26,000 financial firms … • banks • building societies (mortgage banks) • other mortgage lenders • mortgage intermediaries • credit unions • electronic money institutions

  19. … 26,000 financial firms … • insurance companies • insurance intermediaries • investment/pension companies • investment/pension advisers • stockbrokers

  20. … 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

  21. … if they are provided • in the UK • from the UK

  22. 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

  23. 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

  24. Complaint process …

  25. Complainants heard about us from: • the firm 29% • the press 28% • our literature 13% • friend/relative 10% • advice centre 7%

  26. If complainant comes to FOS and has not complained to firm FOS • refers complaint to firm • issues complaint form • awaits complainant contact

  27. 8 weeks written response – final ombudsman referral rights 4 weeks written response – final or holding 5 business days written acknowledge-ment and recorded as complaint complaint unless resolved by close of next business day What requires firmsto do about complaints

  28. 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

  29. phone enquiries written enquiries sift and respond cases to casework

  30. case termination/mediationby adjudicator 42% initial decision by adjudicator 50% final decision by ombudsman 8%

  31. 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]

  32. Mediation by adjudicator • evaluative mediation • by agreement

  33. Initial decision by adjudicator • initial view • (paper) investigation • power to compel evidence • adjudication [can ask for review by ombudsman]

  34. 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]

  35. We decide what is fair in the circumstances of that casetaking into account • law • regulations • regulator’s rules • relevant codes • good industry practice

  36. 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

  37. Redress …

  38. 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

  39. 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

  40. 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

  41. We cannot make the firm • compensate other customers in similar circumstances • change its products, procedures or staff

  42. 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

  43. Workload …

  44. phone enquiries (330, 000) written enquiries(285, 000) totalenquiries(615,000) Enquiries to cases (111, 000) to casework year ended 31 March 2005 …

  45. mortgage endowments current inflow … general insurance banking and mortgages securities other investments pensions

  46. number of new cases

  47. >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

  48. Resources …

  49. Staffing • 1 chief ombudsman • 2 principal ombudsmen • 27 ombudsmen • 1,000 other staff

  50. Cost per case ¥

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