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Consumer confidence counts

The Finanaicl Services and Markets Act did not simply set up the FSA but made provision for one ombudsman and several other panels. Last week&#39s article examined bodies, such as the OFT, GISC and the Treasury which fall for the most part outside the provisions made in the Act which gives the FSA its authority.

But the legislation, besides outlining the responsibilities of the FSA, details the other bodies which operate at arm&#39s length from the regulator.

These too contribute to the regulatory structure of the industry, albeit operating directly on behalf of the consumer instead of for authorised firms. As happened with the drawing together a number of existing regulators to form the FSA, so several of these groups have come together.

The Financial Ombuds-man Service is arguably the most important of these. Like other players in the regulatory landscape, the Ombudsman has been formed by the amalgamation of the eight existing ombudsman bodies.

It has been a challenge for them to come together as one because the legislation was deliberately vague, simply saying there will be a single ombudsman. Within the complaints&#39 process there are three steps – conciliation, adjudication and the formal hearing.

It is the final one which garners the most attention but, as FOS head of communications David Cresswell points out, it is a small minority of cases that get this far.

In the last year, the number of cases has gone up 40 per cent, mainly as a result of complaints about mortgage endowments and bank interest rates on Tessas. Also, customer awareness of the right to complain if they feel they have been missold a product is growing, says Cresswell.

One bone of contention IFAs have had with the ombudsman, which has always been resented by IFAs, is how the service is funded. IFAs complain they are hit with a £500 fee every time a complaint is made against their firm, regardless of the outcome.

But for once IFA lobbying has had an impact. The case fee is expected to fall from £500 to £300 once the new rules come into effect.

With the advent of N2, the Financial Services Compensation Scheme replaces eight schemes, including the Investors&#39 Compensation Scheme, of which IFAs are a part.

The role of the FSCS is to offer a last-stop redress to consumers who have been missold, received bad advice or had savings with a firm that has gone into default or is no longer trading.

The FSCS only comes into effect when all other measures by the FSA to compensate consumers have failed. FSCS head of communications Heather Tilston identifies the need for a smooth transition period so that authorised firms do not notice the difference between the individual schemes and the new set-up as top on her agenda.

The most recent highprofile episode the FSCS was involved in was the controversial £75.7m purchase of IFA Towry Law by financial services giant AMP. A deal was arranged between the parties whereby Towry said it would pay £13m towards the £48m pension misselling liabilities of its subsidiary IFA Advizas.

AMP said it would contribute between £3.8m and £4.8m to pay investors not eligible for payment under the compensation rules.

The FSCS agreed to shoulder the remaining £30m liability or rather its members, IFAs and providers would do so. It defended the action at the time saying it was the best possible situation because if AMP had not stepped in the entire £48m would have to come out of the compensation scheme.

Another voice standing up for the consumer is the FSA Consumer Panel. Although housed in the same building in Canary Wharf, it is independent of the regulator. Its mandate is to vet all aspects of FSA activity to ensure it is in the best interests of the consumer.

While the Consumer Panel does not have any formal power to compel the FSA to do its bidding, it exerts considerable influence behind closed doors.

It was, among other voices, the panel which convinced the FSA it should exclude Cat-marked Isas from its plans to relax polarisation. This move was welcomed by the industry and may not have happened had it not been for the panel.

Acting in a similar fashion to the Consumer Panel are two other groups, the Practitioner Panel and the Small Business Practitioner Panel. Their job is to ensure the interests of the industry and small business are taken into account when the FSA acts.

Like the Consumer Panel, their only power is public pressure but little has been heard from them.other than their annual reports but perhaps they will become more authoritative in time.

All these groups will have a role to play post-N2. While the FSA has been preparing itself for the big day they have used the time to go through their own growing pains.

Hopefully this will mean that after November 30 the transition will take place without those involved noticing anything other than a new letterhead on correspondence.

Even if this is not the case and there is the odd bump in the road, the industry agrees that having bodies other than the FSA working in partnership with the regulator and at times keeping it in check is a good thing for consumer confidence and the industry.


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