View more on these topics

Ombudsman edge – Harriet Quiney

The publication of the joint FSA/Financial Ombudsman Service consultation paper on the two-yearly review of the FOS once again raises the issue of a right of appeal.

There are two reasons why a right of appeal will not benefit the vast majority of IFAs – cost and cost. This may not be a popular message to on the receiving end of an adverse FOS decision but rights of appeal are a two-edged and rather expensive sword.

In general, the FOS is working. In 2004, it resolved 76,704 cases, only 8 per cent going as far as an ombudsman&#39s decision. Of these cases, 37 per cent were decided in favour of the customer and 47 per cent in favour of the firm. This shows that rights of appeal are irrelevant for the vast majority of complaints but if there was an appeals process, it would be used by customers more often than IFAs, particularly as IFAs should be able take a dispassionate view of adverse decisions.

To a certain extent, rights of appeal already exist. Decisions are initially made by an adjudicator. Parties who are unhappy with an adjudicator&#39s decision can refer the matter to an ombudsman.

If the ombudsman&#39s decision is likely to be significantly different, the ombudsman will normally issue a provisional decision so that the parties have a further opportunity to comment before the decision is finalised.

FOS decisions may be the subject of judicial review. The Norwich & Peterborough case held that review by the courts is appropriate where the FOS misinterprets a point of law, makes a decision which is irrational, takes into account an irrelevant fact or fails to consider a relevant fact.

In addition, the independent assessor can review complaints where the customer is dissatisfied by the investigative process or the behaviour of FOS staff. Last year, the FOS was ordered to pay compensation in 28 cases. This remit does not extend to firms and perhaps it should. Having said that, the assessor cannot consider the merits of FOS decisions.

The costs of judicial review are substantial but this leads on to an important point. If there was an appeal procedure, what form should it take and how should it be funded? The consultation paper discusses various procedural options, which I do not propose to repeat, but its comments on cost should sound a warning.

The FSA has suggested that where a firm invokes an appeal process, it should pay, irrespective of the outcome. This means that firms will not have the benefit of a subsidy provided by the annual levy.

The FOS can deal with cases worth over £100,000 but it rarely does so. This alone means that for most cases, a court-based process would be disproportionately expensive. Even an informal process could be expensive as, at this level, lawyers might be required.

On this basis, I do not think an appeals process would significantly benefit firms. There is an exception – wider implications cases. However, a right of appeal is not the answer. In wider implications cases, an informal dispute resolution procedure is inappropriate. The PIA and banking ombudsman schemes made express provision for wider implications cases to be taken to court, provided that the firm agreed to meet the customer&#39s legal costs.

In fact, these provisions were used only three times, most famously giving rise to the decisions on the treatment of windfall benefits in the pension review and Equitable Life&#39s bonus declaration practice.

The FOS rules do not contain such provisions although the FOS can decline to make a decision if it feels an issue would be better dealt with in court. There are no published statistics to show how often this power is used. Experience would suggest rarely, if at all.

Despite this caveat, one cannot have it all. IFAs have a generally speedy, informal and cost-effective dispute resolution process which is popular with both firms and customers.

Burdening this system with an appeals process might result in better decision-making in a small number of cases but customers are as likely to be favoured by this as IFAs and the additional cost is unlikely to be proportionate to the benefit received. On that basis (and unusually) I agree with the FSA&#39s tacit position that an appeals mechanism is inappropriate.

Harriet Quiney is a senior solicitor in Reynolds Porter Chamberlain&#39s financial services team


FSA looking at equity-release league tables

The FSA is considering bringing equity release into its controversial product league tables. It is carrying out market research on equity release which it says is essential to help it understand how the market works, particularly as the topic of equity release is a sensitive one, given the vulnerable sector of the market the products […]

Brokers say social housing move will aid FTBs

Funding for 10,000 social housing units a year by 2007/08 is part of a housing budget for England of £1.3bn a year announced by Chancellor Gordon Brown in the spending review this week. The news has been welcomed by brokers who say the move will help first-time buyers and lead to a wave of innovative […]

Zurich whole-of-life plan aids IHT

Zurich is offering a whole-of-life plan with no investment links aimed at helping consumers cover their inheritance planning needs. The Zurich adaptable life plan, launched on July 19, aims to deliver a cash sum on death. Premiums for £200,000 of level joint-life death cover for a male or female aged 50 next birthday are £115.25 […]

Manchester Building Society network receives MTA

Manchester Building Society claims to have become the first regional building society to receive its minded to approve letter from the FSA. The society&#39s Mortgage Broking Services Ltd was launched earlier this year to enable financial advisors to comply with changes to mortgage regulation in October. The society network offer provides a fees free compliance […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm