It’s hard to believe that it’s been 15 years since the global financial crisis in 2008 – an event that prompted a series of regulatory reforms. The UK finance industry has come a long way since then – 2013 of course saw the dissolution of the Financial Services Authority (FSA), to be replaced with the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA).
Against this backdrop, the reach of the Financial Ombudsman Service (FOS) has been extended and it plays an increasingly important role in resolving disputes between financial institutions and consumers.
But what have been its chief preoccupations, and what’s changed over the past 10 years in terms of complaints to the FOS? Let’s take a look:
Work type
Much like our junk email folders, the FOS was largely preoccupied with PPI 10 years ago. Almost 80% of FOS complaints at that time were in relation to PPI. These days, the FOS is swamped with other types of low-value complaints, primarily concerning current accounts, credit cards and motor insurance and finance.
The good news is that complaints against financial advisers in relation to investments and pensions have remained a minor aspect of the FOS’s workload over the past 10 years. The bad news is that they tend to be higher value complaints, and the compensation that the FOS is able to award has increased dramatically.
Compensation limits
When I started in financial services disputes, the FOS could make an enforceable award of up to £100,000. That has now risen to a staggering £415,000. Like risk and reward, value and complexity often go hand-in-hand when it comes to financial services disputes; generally speaking, the higher the value, the more complex the dispute tends to be. Complex matters that would have been resolved in courts in years gone by are now falling into the hands of the FOS. There are a number of implications here.
- In court, you can rely on matters being resolved by reference to established legal principles. The FOS resolves complaints informally, based on what they feel is fair and reasonable. I’ve seen some surprising decisions, as I’m sure you have. When it comes to whether this works in your favour, in my experience, it depends on the particular investigator and/or Ombudsman assigned to the complaint and whether you have legal representation.
- Less litigation, but more FOS complaints with much greater potential liabilities:
- These days, generally speaking, there won’t be many claims progressing through the courts unless everyone with skin in the game (lawyers, insurers and funders (and their lawyers)) are satisfied that there are sufficient prospects of the claim succeeding. Very generally speaking, a claim with prospects of success in the region of 60% is considered a ‘good’ claim. Lawyers will very rarely say that prospects are any higher than around 70%. That being the case, most claims issued in court have a fair chance of being successful.
- The same isn’t true for FOS complaints. The annual uphold rate peaked at 64% in 2011/12; I recall the widespread criticism in the financial press about the FOS being biased towards consumers, and the uphold rate tailed-off significantly thereafter. However, it has been consistently between 31-38% for the past 5 years. So of late, there is a much lower chance of FOS complaints being upheld. The consequences when they are though, are increasingly severe.
- Insurance costs increasing for firms
- With so much more at stake, specialist representation is likely to be more in demand on both sides.
- Even though investment and pension complaints already take several years to resolve, I anticipate increasing delays at the FOS as a result of increased complaints, with greater complexity and more hard-fought complaints with professional representatives on both sides.
Timescales
On the subject of timescales, as PPI phased out and the FOS’s workload changed, a severe backlog was revealed.
In March 2021, the then Chief Executive of the FOS, Caroline Wayman, resigned following news that the FOS was facing a backlog of 158,000 complaints. In recent years, after a complaint concerning pensions and investments had been registered with the FOS, my team was informed that it would take four months just for an investigator to be appointed; the complaint wouldn’t even be looked at until then. It has taken another 6-12 months for an investigator’s view to be issued and, if one of the parties disagrees with the investigator’s view, it currently takes approximately 12-18 months for an Ombudsman to issue a final decision. It’s a long, and sometimes painful, process.
Recent FOS decisions in pensions and investments
DB transfers are still the main event in recent Ombudsman decisions - a number of complaints have been upheld about unsuitable advice to transfer out of defined benefit pension schemes.
One such decision, DRN-3624125, highlights an important point about complaints referred to the FOS – they won’t restrict themselves to investigating and issuing decisions in relation to solely the matters complained about. The Ombudsman said on that point:
“Just because Mr J didn’t, or perhaps couldn’t articulate his complaint fully or use the language NTM might have expected him to use when complaining about the suitability of the advice, this doesn’t mean we can’t consider what we feel NTM should’ve looked at when it considered Mr J’s complaint. To not consider the bigger picture would, in my view, not be treating Mr J fairly. I think our role is to do more than just look at a complaint as it's written or explained to us – what the investigator referred to as our inquisitorial remit. And it is for these reasons that I’m satisfied it is appropriate for me to address what I believe lies at the heart of Mr J’s complaint, which is the suitability or otherwise of the pension transfer advice Mr J received in 2017” (my emphasis).
It’s important to bear this potential expansion of liability in mind from the outset when investigating and making decisions about when and how to resolve complaints.
In summary, the FOS’ presence is rising in the world of financial dispute resolution thanks to enormous increases in the compensation that it can pay and, as a free service, the number of complaints seen through the service will surely rise. But with the low uphold rate (which seems to be a target) and pensions and investments still being a very small proportion of overall complaints, it’s not all bad news.
I look forward to seeing what the next ten years brings.
