Parliament recently considered Fos’ operations in its Financial Services Act 2012. It decided that no amendments of significance were needed. It declined to introduce a backstop or any obligation to apply the law. Far from being in some sense antithetical to law, Fos is created by it and observes it. The ombudsman’s judicial review record illustrates that. It has lost one published case in part (Garrison) and two unpublished ones (one of which it conceded without a fight), two in favour of the industry and one for the complainant.
Fos’ refusal to grant hearings has a great deal to do with its caseload, which, even without PPI, is likely to hit 120,000 cases in the current financial year. The European Court of Human Rights backed the Fos on this in the HME case, finding the suggestion that a hearing was necessary as unarguable. The Fos has never lost a case on natural justice in the courts for the simple reason that it gives parties the right to respond to complaints when they are originally made, before and after an adjudication, and in response to a draft decision. The courts are not nearly as generous.
Mr Austin’s suggestion that the law embeds a right of appeal is incorrect. One has to ask the court in all cases for permission to appeal. Anyway, Parliament has declared (in 2000, 2010 and 2012) that the only challenge to Fos is to be by way of judicial review.
Incidentally, anyone thinking the law would favour the industry might like to consider the Equitable Life and Needler cases, where the courts proved far more brutal than Fos, and Seymour v. Ockwell, when considering claims relating to financial advice.
If one removed the Fos, one would have to invent it again. Hong Kong found that out the hard way when faced with mass mis-selling of structured products. It had demonstrations on the street and still has them in front of major financial institutions. Hong Kong now has a quasi-ombudsman scheme as a result.
Allegations of anti-adviser bias are not borne out by the case examples given. Mr Wassall refers to an offshore property unregulated collective investment scheme sold to a cautious investor. Advisers need some CPD urgently if they think that such a fund is suitable for this type of client. Offshore property could be located anywhere and the Ucis format means there are no controls over the fund. A number of overseas property Ucis have gone wrong in recent years and always will do. The fact that the marketing material was also misleading does not make unsuitable advice suitable. It just gives the adviser the right to sue the provider. The Seymour v. Ockwell case reached an almost identical decision.
Although the Fos readily criticises banks and insurers publicly, it has never been negative about advisers. Its reversal rates show advisers do not perform particularly badly at the ombudsman. One bad Fos experience, though, for a firm that has very few cases will leave a disproportionately bad taste. Justice in all its forms does throw up wrong results occasionally. Larger firms can tolerate this by offsetting the bad decisions against them with the equally wrong results in their favour.
Fos’ 25 free cases a year from April should leave all but the nationwide advisers paying nothing except the FSA levy. Even the current three-case fees does that for the vast majority of firms. The problem with the cost of Fos to advisers is a matter of spreading the levy across the fee blocks correctly, the FSA’s job.
Fos is not intimidated by the big banks. Its record on PPI of upholding more than 80 per cent of complaints in two of the past three years compares very favourably with the FSA’s inertia.
Secretive
Mr Austin says Fos is secretive. Sometimes it is, notably when it is trying to link up with the FSA to achieve more efficient outcomes for consumers. However, it has long published extensive case extracts and commentary in Ombudsman News, technical papers and, more recently, decisions. Fos will soon be publishing all its decisions. The courts are much less transparent with most judgments never published.
Mr Austin’s strong point concerns qualifications. The Fos responds that its job is to handle complaints, not give financial advice. What the ombudsman should do is explain its internal qualifications for staff that it operates through its college. Requiring investment ombudsmen to have level four or the CISI Compliance Diploma would be a good idea.
However, one should also bear in mind the enormous increase in complaints handled by the Fos in the past 10 years. Excluding mortgage endowments and PPI cases, the caseload has essentially trebled in the past decade. The PPI explosion means the organisation is going to receive eight times more cases this year than its first full year of 2001/2002 and almost six times the figure for the following year. A business growing at these rates would have failed by now.
There are lessons going forward from all this. The adviser sector must learn that the law and Parliament are not “on its side” on the 15-year backstop, oral hearings and advisers’ liabilities for recommending products whose marketing material is misleading. The Fos has just received its third Parliamentary mandate. The IFA sector needs instead to present what it does openly and subject it to peer scrutiny. In that way, Fos will be able to see more clearly what is ‘good’, not ‘actual’ practice. Advisers are very low on the ombudsman’s radar for the good reason that they are involved in disproportionately fewer cases, something that helps their reputation at Fos. Accusing that organisation of bias, illegality or unfitness for purpose is pointless. The evidence contradicts the first two suggestions. No organisation could handle the turnover increases that the ombudsman has had to deal with and be entirely “fit for purpose”.
Adam Samuel is a freelance journalist and compliance consultant
Key points
– In the past few weeks, Fos has been described as “not fit for purpose”.
– If Fos was removed, it would have to be invented it again.
– The advisers must learn that the law and Parliament are not “on its side” on the 15-year backstop, oral hearings and advisers’ liabilities for recommending products whose marketing material is misleading.
