Financial Ombudsman Service chief executive Natalie Ceeney has justified the need for £25m in additional reserves after payment protection insurance complaints caused the FOS to end the year with a £7.6m deficit.
Ceeney says the judicial review launched by the British Bankers’ Association in October, challenging the FSA and the FOS over PPI redress measures, meant many banks simply refused to co-operate with the FOS on PPI complaints.
She says: “From when the legal action started in the autumn, many of the major banks said they would not co-operate on case handling.
“We kept seeing complaints but, in practice, our ability to resolve cases plummeted. That meant we ended the last financial year with an £7.6m deficit.”
The judicial review was heard in the High Court in London in January. Also in January, the FOS revealed it would be asking for up to £30m to boost its reserves to cope with the increasing cost of dealing with PPI complaints.
The FSA agreed a £25m industry levy to boost FOS reserves in March and in April the High Court ruled in favour of the FSA and the FOS.
The FOS is funded by an industry levy and a £500 case fee paid by firms for the fourth and each subsequent case referred to the FOS in one year. Ceeney says the need for extra reserves was not motivated by lost case fees but because cases were taking longer.
She says: “A lot of people misunderstood that the additional reserves were because we were not getting the money from case fees. But if a case normally takes two days and suddenly it takes a week, you can do fewer cases with your resources. You still have all the costs involved, such as staff, but a fraction of the income.
“The only reason we had a deficit last year was because cases took far too long to close, which was down to PPI. The £7.6m deficit came out of our reserves and that is why the reserves had to be raised.”
Ceeney believes PPI will dominate the FOS workload for at least two years.
PPI is not the only product that has been driving complaints to the FOS. It has seen an increase in investment complaints over the last year, particularly through the advice arms of banks and building societies.
Ceeney says: “Some of the highest-volume and worst investment complaints we see come through banks and building societies, involving low-risk investors who do not realise what they are getting into. That has dominated our investment workload over the last year.”
Natalie Ceeney: ’The £7.6m deficit came out of our reserves and that is why the reserves had to be raised
The FOS has seen repeated issues with the way in which funds are described, such as use of the term, cash funds.
Ceeney says: “The two areas where we find problems are fund description and sales and advice. I know these are thorny issues but we need to make sure products are described in a suitable way for the people who are going to buy them and that they are sold appropriately to take account of attitudes to risk.”
She believes the criticism generated about the FOS by IFAs stems from a lack of awareness about how the FOS works, which is stirred up by a minority of IFAs dissatisfied with an FOS ruling.
She says: “Within the IFA community, there are an awful lot of misunderstandings about what we do. Most IFAs in any one year do not use us. There are a small number of IFAs who maybe lost a case a decade ago, who then create noise about us.
“Unfortunately, within the IFA community, the voices of the few often drown out the sensible voices of the many. We work with all the trade associations and have really constructive relationships with them.”
The FOS revealed in December it is considering publishing some of its final decisions, a move Ceeney says was prompted by the Government.
Decisions would only be published if they had reached the ombudsman stage, where an initial adjudication has been appealed. Ceeney is supportive of the move. She says: “We are in an internet age and if we do not publish, other people will do it for us. Also, if we publish decisions routinely, it will demystify what we do.”
Assuming the Government gives the go-ahead, the FOS will consult on how publishing decisions would work in practice, if consumer names would be left out and if publishing decisions would be automatic. The FOS expects to consult on the proposal in autumn.