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&#39Industry watchdog must have teeth&#39

If the industry wants consistency, it must accept the Financial Ombudsman Service&#39s right to establish precedent through its rulings, according to chief financial ombudsman Walter Merricks.

Speaking to Money Marketing this week, Merricks says the industry holds contrary views on the issue, saying on one hand that it wants consistency but on the other that it rejects that FOS decisions should set precedent.

He says: “There is a slight lack of joined-up thinking. I hear people say it is terrible that the ombudsman is setting precedent yet I also hear that it is terrible that decisions do not seem to be consistent. If the industry wants consistency, the FOS would need to set up precedent to follow.”

Merricks explains that if the industry sees the ombudsman as an alternative to the courts, then people need to understand how the concept of precedent works.

He says from time to time there will be cases in areas where no other body has previously made a decision or it may be slightly unclear as to how a particular law or piece of regulation should be applied to a particular set of circumstances. “If no one has had to make that decision before, inevitably the ombudsman is cast in the front line to do that.

“What we try to do is think very carefully about what the implications of our decision will be and where we would draw a line. Then we try to anticipate the variety of other circumstances that could conceivably come up before we make a decision. We do not dream these things up out of nowhere and we do not proactively look for cases.”

Looking at the forthcoming Treasury review of the legislation underpinning the FSA, Merricks welcomes the chance to redefine the relationship between the regulator and the ombudsman.

He says: “Everybody has always known there was going to be areas of overlap between the two organisations. I think it is working quite well but I understand why some people might want to draw attention to ways in which the relationship could be more transparent and to understand how the two bodies communicate in areas where our functions overlap.”

It can sometimes be a complex issue trying to work out where the middle ground is. Merricks admits there are often circumstances where individual consumers may be making a complaint to the ombudsman at the same time as the FSA is taking a regulatory interest in the same issue from a different angle.

He says: “There is still debate as to how FOS and the FSA should come together on overlapping issues. Whether they are supposed to or whether they should continue on completely separate, parallel tracks is a question that needs to be addressed. It is entirely legitimate for people to ask questions about whether we should be empowered to work more obviously with the FSA.”

Merricks will not be drawn on how long the industry will be subjected to complaints on split-caps and structured products. He says: “One thing I have learnt is not to try and forecast how many complaints we will get and how long they will go on for.

“We have put our budget out for the year but, frankly, I believe these things are usually out of date before the ink is dry on the paper. Split-caps is still a major exercise and it has gone on longer than we expected but we will not rush to judgment on decisions.”

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