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Chief ombudsman required – no experience necessary

Peter Hamilton is a barrister specialising in financial services at 4 Pump Court

Oh dear, here we go again – another swipe at the Financial Ombudsman Service. Yes, and no apologies. This time, it is directed not at the rules governing the way in which the FOS deals with complaints or at the quality of its adjudications but at the board of the FOS who are responsible for the advertisement seeking applications for the job of chief ombudsman to succeed Walter Merricks who held the job from 2001 until his recent departure.

As was reported in Money Marketing on September 30, Russell Reynolds Associates has placed the advertisement and it makes extraordinary reading, especially as the FOS is a dispute resolution service offering an alternative to the ordinary courts and covering the whole of the financial services world with its many complex legal issues.

The board of the FOS are looking for a chief executive to provide leadership and direction, to develop the strategy to ensure the successful achievement of the FOS’s aims. But legal knowledge is not mandatory and a legal qualification is not even mentioned. The new chief ombudsman will have to review the “business model, as well as ensuring that the appropriate resources, systems and procedures are in place to maintain the quality and consistency of case-handling and to meet the increasing demands of a growing and changing caseload…l Sound operational management ability will ideally be balanced by a track record of innovation”.

The Financial Services and Markets Act is the statutory foundation for the FOS. Section 225(1) of the act makes provision “for a scheme under which certain disputes may be resolved quickly and with minimum formality by an independent person”.

Schedule 17 to the act sets out the essential aspects of the scheme. The FSA is required to set up a company to operate and administer the scheme. That company is the FOS.

The company is required to “appoint and maintain a panel of persons, appearing to it to have appropriate qualifi-cations and experience, to act as ombudsmen for the purposes of the scheme”.

The essential purpose of the scheme is to resolve disputes quickly and with a minimum of formality and includes the power to make awards of redress up to a current maximum of £100,000, which are binding on the firms against which the complaints are made.

Significantly, Schedule 17 of the Act then goes on to require that the FOS “must appoint one member of the panel to act as Chief Ombudsman”.

In other words, the chief ombudsman is to be drawn from the panel of ombudsmen. The intention of Parliament appears to be that the chief ombudsman should have experience of doing the day-to-day job of resolving disputes quickly and with a minimum of formality.
It follows, therefore, that an essential requirement for this very important job is to have some relevant experience in the day-to-day resolution of disputes – perhaps as an ombudsman or a lawyer with experience of litigation and the relevant areas of law and practice, including the regulatory regime.

But, no – the advertisement says that “Legal knowledge and/or familiarity with a quasi-judicial sector would be helpful, but is not mandatory”. This is extraordinary.

And it gets worse. The detailed specification for the job says that the role is to “lead a vibrant, growing, highly professional organisation during an exciting and unprecedented period of change…l He/She will combine normal chief executive functions with ensuring the satisfactory resolution of disputes. The number of cases in whose resolution the chief ombudsman will be directly and personally involved is likely to be very small and concentrated on the very largest and highest-profile cases”.

The FOS board seem to think that the person who will have the responsibility to resolve the very largest and highest profile cases does not need to be a lawyer or even have any legal knowledge

The FOS board seem to think that the person who will have the responsibility to resolve the very largest and highest- profile cases does not need to be a lawyer or even have any legal knowledge.

There is no difficulty in accepting the high profile of the role and that part of the job is to be the head of the organisation and to be its public representative. But it does not necessarily follow that he or she has to be the chief executive with responsibility for the smooth running of the organisation. That surely should be done by someone reporting to him.

There are plenty of important matters of principle embedded in the law generally and in the specific statutory regimes applicable to the disputes coming to the FOS for resolution, which should be of concern to the chief ombudsman.

In relation to these matters of principle, he or she should be involved in setting out the overall strategic approach of the FOS. Some of these issues are very controversial and require a high degree of analytical thought coupled with considerable judicial skill.
Some examples of these issues, most of which have been considered in this column before are:

  • The inherent conflict between the citizen’s natural expectation that a dispute involving issues of law as well as fact would be decided according to the law, with the statutory duty in the act to determine that dispute “by reference to what is, in the opinion of the ombudsman, fair and reasonable in the circumstances”.
  • In considering what is fair and reasonable, it is necessary under the FOS rules to take into account relevant law and regulations; regulators’ rules, guidance and standards; codes of practice; and (where appropriate) good industry practice at the relevant time.

It is one thing to apply the law and these rules to the facts of a case, which can be a complex judicial exercise. It is no less difficult to take all these rules into account, and then decide it is fair and reasonable to reach a different decision, giving proper reasons for taking that course.

  • The fact that a court could reach a different decision on the same facts.
  • An appreciation of the controversy relating to the other areas where the FOS rules are materially different from those applicable in the courts, such as the absence in the FOS rules of a long-stop provision analogous to the 15-year rule in the Limitation Act 1980.
  • The (at least, potential) conflict between a decision considered to be fair and reasonable on the one hand, and on the other, the right under the Human Rights Act not to be deprived of one’s possessions (as a result of the enforcement of a FOS decision) except as provided by law after a fair and public hearing.
  • Understanding what is and what is not proper or appropriate evidence to support a finding of fact.
  • A proper understanding and application of the rules of natural justice.
  • A proper understanding of the rule of law and the FOS’s general duty to uphold it.

Legal issues of the above sort fall fairly and squarely on to the plate of the chief ombudsman. They need to be resolved and managed by someone who is a senior and experienced lawyer, with a deep understanding of the legal traditions of the UK, to appreciate the issues and conflicts and to form a balanced, fair-minded and authoritative judgement on how they should be resolved.

A person with “first-class leadership skills, ideally gained in a challenging, consumer-focused environment characterised by growth and change” is not necessarily well equipped to deal with complex legal matters.

The board of the FOS have failed to give proper consideration to the nec- essary qualifications for the new chief ombudsman.

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