The Financial Ombudsman Service has been in the news recently by virtue of the increase to the compensation limit, the publication of its 2010/11 annual report and the leaked criticism from a number of trade bodies about the quasi-regulatory role it enjoys.
The FOS is everybody’s favourite whipping boy but seldom has a target so deserved the arrows of fury.
It is unique in that it functions without the constraints of law that limit the activities of every other UK organisation. This freedom results from its FSA-derived rules, empowered by the Financial Services & Markets Act 2000.
The accusation of being a consumer champion, which the FOS energetically rebuts, stems partly from the manner with which it carries out its investigations.
Unlike a court, the FOS is able to depart from the specific allegation being levelled and pick through the advice process looking for some aspect it does not like. This inquisitorial process often results in the original allegation being rejected but another, often disassociated matter, being used to uphold the complaint.
The FOS has been subject to 14 judicial reviews and so far has emerged victorious in all of them. One reason is the FSA rules and the FSMA enable enormous latitude and legally the FOS has found itself on firm ground. However, the FOS is not able to override statute and neither is it able to ignore the requirements of the Human Rights Act, although it has so far succeeded due to product providers and trade bodies exhibiting a lack of appetite for a challenge.
A recent survey conducted by PanaceaIFA discovered an overwhelming majority of respondents finding fault with FOS procedures. One area which is sure to antagonise any adviser is where an opportunistic complaint is levelled by a client or a claim management company. Some of these are clearly vexatious or devoid of logic yet the FOS invariably accepts jurisdiction causing the adviser hours of unnecessary work, interaction with his PI insurer and, potentially, payment of a £500 case fee.
Another area causing outrage is the interpretation of the dispute resolution rules which set out how the FOS is able to deal with complaints. English law provides for three separate time limits – six years from the date of the action in question or, if later, three years from awareness that there is a reason for concern, with an overall long stop of 15 years. The FOS accepts the six-year rule, plays with the three-year rule and totally ignores the 15-year long stop.
The lack of a long stop is the most emotive as it singles out our industry for a removal of human rights. No rationale is used for this confiscation of rights apart from some mumbling about the long-term nature of financial advice. The FSA refuses to disclose its legal opinion on the matter, simply stating its legal counsel considers it was Parliament’s intention to remove the defence. As I have pointed out previously, the long stop was never discussed, debated or commented on when the FSMA was being drafted and the legal opinion is dubious. At some point, this opinion will be tested.
Alan Lakey is partner at Highclere Financial Services