OpinionFeb 27 2013

Fos is not fit for purpose

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The robust debate over the introduction of the Retail Distribution Review and the subsequent reconfiguration of business models has, in many ways, crowded out an equally important debate about the role of the Financial Ombudsman Service, the body meant to be in the frontline of sector-wide dispute resolution.

In fact, Fos, the great elephant in the room, has proven over the years to be the classic example of how industry can capture the commanding heights of financial regulation.

Even its most die-hard supporters cannot say in all honesty that Fos is fit for purpose. It is secretive, perceived to be grossly incompetent and, most of all, seems to work to its own rules without any sense of accountability to the general public.

As a quasi-judicial body, it appears to make up the rules of natural justice as it goes along: no one knows if its so-called assessors are qualified, and even the common administrative courtesies, such as acknowledging complaints and operating on the principles of fairness, seem alien to its core values.

There are numerous examples of Fos’s operational arrogance: the way it can often be dismissive about complaints that, to its assessors, may seem routine but to the individuals are matters of grave concern. It sometimes draws conclusions from the outline of complaints, which by definition are brief due to the space on their complaints forms, which to most people would be irrational and simply crying our for further explanation.

Further, the right of appeal, embedded in the common law of England and Wales for centuries, is denied the complainant since Fos is its own judge and jury.

And there is the implication that Fos, for a variety of reasons, but mainly due to its lack of institutional expertise, is easily intimidated by the big battalions of financial services, in particular the retail banks and insurance companies.

At a time like this, when small advisers face all levels of complaints by activist consumers, it is important that the industry ombudsman not only operates fairly, but is seen to be operating fairly.

The first principle of such transparency is to let people know what qualification hoops recruits have to go through before becoming assessors.

For financial advisers, RDR has stipulated level four, followed by co-operation with a strict code of professional ethics. But for Fos staff there is no such compulsory requirement. On a number of occasions we have questioned the impartiality and competence of Fos precisely because of that fog which surrounds the recruitment and training of its frontline assessors, the nature of its decision-making and what can be perceived as its institutional obstinacy when those decisions are questioned.

There is also an apparent underlying institutional ideology driving the organisation in which financial advisers are always, or at least perceived in the majority of cases, to be in the wrong. But this bias is reversed when it comes to the big providers, in particular direct sales motor insurance companies.

RDR and the radical changes it has brought should have been an opportune moment to review the operations of Fos. It was a missed opportunity.

In fact, RDR’s greatest impact was focused on the distribution sector, seen by Canary Wharf and the Treasury as the evil sector, while some providers, including retail banks, continue with their sales-focused policies unhindered by anything as complicated as treating customers fairly.

One trick they have adopted, as seen with payment protection insurance, is to blame the victim.

It is the customer and the adviser, the small guy, who is always wrong, or who brought the problem on himself, or worse, those reprehensible claims management companies. The trouble with this, of course, is that all decent people dislike CMCs for what they represent, so find it easy to shift the blame to the villains.

The discrepancy between Fos assessments and reality is clear. For example, retail banks have come in for serious criticisms from consumers, advisers, regulators, politicians and anybody with a voice.

Yet banks have an unrivalled notoriety in customer service; they have no basic respect for their customers, ignore them or simply dismiss them as misguided. More than that, the problem with Fos goes far beyond its annual business plan and the other window dressing that one is familiar with.

Fixing this is simple: when people make complaints, if they are consumers, the complaint should be acknowledged within a reasonable period of time, an assessment takes place within a given period and a rational decision made and explained.

The defendant should be given a clear and comprehensive outline of the complainant’s allegations and an opportunity to put its own case.

Any appeal should be to an independent person who had nothing to do with the original assessment and both the complainant and the defendant should be given opportunities to put their case.

Justice demands that Fos must be dragged shouting and screaming in to the 21st century, and the best time to start is now.

Justice demands that Fos must be dragged shouting and screaming in to the 21st century - the best time to start is now

Hal Austin is editor of Financial Adviser

You Said:

Fundador in response to Jeff Prestridge’s column on financial education in schools

For once I’m with the government. But at the same time, if we cannot teach kids simple arithmetic, what hope is there for understanding financial issues? I do agree however that it is above all a question of citizenship: if nothing else, people should understand what their taxes are spent on. Maybe that way we will get some sense back into the system.