Parliamentary Connections

Lord Hunt has hit several nails firmly on the head in his review of the Financial Ombudsman Service. His demand that it breaks out of its middle class enclave is a bold one and not to everyone's liking. Similarly, he has ruffled a few institutional feathers by proposing that consistent poor performers should be named and that moves towards publishing more firm specific data should be put in hand. He does his best to limit the shock of such proposals by suggesting that the best performers should be publicly acknowledged through an awards programme.
This all makes alot of sense. Various well-meaning initiatives to improve standards across the financial services sector have failed to have the desired impact because they always take fright at the thought of publishing firm-specific data. The Association of British Insurers' Claims Code was a case in point. It had a solid set of benchmark measures of service quality that everyone in the industry agreed were reasonable - and the more honest accepted were not especially challenging - but mention the possibility that the performance of firms against those standards might be published and you would be left wondering at the ingenuity of some people in thinking up reasons for not doing something so obvious and so beneficial. Lord Hunt addresses many of these points.
The review encourages the FOS to do more to set out its own stall rather than rely so much on firms to promote it: this is an absolute must. Abit more surprising is the suggestion that it might change its name to the Financial Complaints Service. But Lord Hunt is right: "ombudsman" is a very intimidating, very middle class word and if, as its remit extends into areas such as consumer credit, the FOS is to reach the people who buy these products it needs to become accessible to large numbers of people with whom it currently appears to have no relationship.
One area where he suggests more work needs to be done and which I hope doesn't get lost is the compensation limit of £100,000. I can accept that many of the arguments for and against the retention of this limit (set by the original Insurance Ombudsman back in 1982) justify his criticism that they are assertions short on evidence but it really doesn't take much to generate a problem worth £100,000 nowadays and there is a danger that the drift towards taking large cases to court will grow stronger if something isn't done to raise the limit. Indeed, the industry must ask itself what it has to fear from this.

It seems that the All Party Group's report on the Financial Ombudsman Service has caused abit of a stir.
Saturday's Money Box on Radio 4 featured a debate between Chris Cummings of the Association of Independent Financial Advisers and the group's chairman, John Greenway.
AIFA's response to the Hunt Review included a call for a fee to be levied on consumers to deter vexatious and frivolous complaints and, when pressed by Paul Lewis on the programme, Chris Cummings put a figure of £400 on the sort of fee that should be applied. This is substantially higher than any of the organisations that came to the group to put this point suggested and I think further underlines that the group was right to reject the idea, saying "The group is not in favour of introducing fees whereby the consumer pays to get access to FOS (even where such fee is refunded where a case is upheld), as it is felt that this might deter some consumers with genuine grievances. The group understands the industry’s concerns about mischievous complaints but considers the danger that even one genuine complaint might not be submitted because of the imposition of a fee to be too much of a risk".
John Greenway also warned that imposing a fee – even a refundable one – would risk driving complainants into the hands of ambulance chasing lawyers and even direct to the courts, all of which would be far more damaging to the small advisers AIFA is trying to protect.
As Mr Greenway pointed out, the Hunt Review is meant to be about improving accessibility of the Financial Ombudsman Service and talk of fees is hardly going to achieve that.

The report from the All Party Parliamentary Group on Insurance & Financial Services on the future of the Financial Ombudsman Service makes several interesting recommendations. It comes out with some clear recommendations on the binding limit and the need for a much clearer appeals process. It is worth reading.
Having sat through the presentations from the Ombudsman, industry and consumer representatives, I can vouch for it being a very even-handed review. There is something in it for everyone and somethings that will not be to their liking as well.
For instance, the Ombudsman will not be happy about the suggestion that an independent appeals process should be introduced as it has opposed this in the past. Industry representatives pressed for a refundable fee to be introduced but this was rejected.
Most of the recommendations now go to the Hunt Review and it will be up to Lord Hunt to sift through the many differing views he will receive. Some of the group's recommendations about banking regulation and law, however, fall way outside the scope of the FOS review and will be taken up separately with the Financial Services Authority and the Law Commission. These may prove the more controversial in the long run.