The Financial Ombudsman, a fair service?

The Ombudsman service (the FOS) is financed by the finance industry. Why do so many people seem to regard its operations with contempt?

A Journalist
26 May 2015


The Financial Ombudsman Service (FOS) is a body that investigates financial complaints about regulated firms and can award compensation of up to £150 000. Yet, it is characterised, at least in the internet, as much by complaints about it, as by those made to it.

The allegations include evidence, laws and facts being ignored, as well as unfair arguments, all of which swing complaints one way or the other. There is evidently also a tendency to reject or support a complaint totally, rather than award in terms of contributory negligence. With many financial complaints, the truth is somewhere between the two extremes, so that partial compensation should be common as well. Additionally, there are frequent claims of incompetence, unintentional or otherwise. The latter refers to “deliberately getting the wrong end of the stick”, as one person expressed it. 

Furthermore, there are allegations that the FOS sometimes uses the same kind of invalid defences as the firms. These include so-called “fishing expeditions”, where some irrelevant investment in the past is passed off as evidence of risk friendliness. Similarly, there is the old “experienced investor” argument, which is used as an all-purpose defence for the firm. 

The main complaints of unfairness are from small investors with large firms and small financial advisors, who many people believe constitute easy targets for the FOS. High profile cases such as on payment protection insurance (PPI), are somewhat different. There is no doubt that the FOS can be fair and reasonable too, but it does rather seem excessively “selective”.

These various criticisms, that can easily be found in the internet in such forums as the Consumer Action Group, Citiwire, assorted private internet sites and newspapers, are often extremely angry and bitter. Those who claim to be victims refer to “FOSstration”, the “Farce” and of a body that is “judge, jury and executioner all rolled into one”.

While the FOS itself seems generally to ignore these complaints or write them off as “sour grapes”, there seem far too many angry people out there over for far too long a period of time for them to be a mere hoard of bad losers.  

Not surprisingly therefore, Queens Council Anthony Speaight gave a talk to the Professional Negligence Bar Association a few years ago, entitled “Ombudsmen Who Are An Affront to the Law”, and he specified that the FOS is precisely this. Speaight laments that there is no appeal process, the FOS even admits “making its own laws” and as a result, the process is “unbalanced in several respects”.

Another commentator confirms: “The FOS takes its own view of what is fair rather than merely following the law.” Clearly, this “own view” opens up the field for all manner of things, including the common allegations of evidence being ignored, firms being defended with illogical arguments that conform neither to the law nor to common sense and so on. The processes themselves are often claimed to be unsound: “The FOS is not obliged to re-visit its rulings even if new evidence turns up, and anecdotal evidence reveals its reluctance to do so.”

An investigative journalist recently commented that “We have a number of other watchdogs here in the UK apart from the FOS, which operate in exactly the same way. They come down very hard on minor offenders and shy away from pursuing the real criminal organisations that have huge bank accounts and the very best legal teams. They never articulate it as such, even in private. That's why it's so hard to uncover”. 

Furthermore, a certain disgruntled Fiona L. sums up a commonly expressed cause of the problem: “The FOS may look  like an official body invented to defend the King’s gullible and unsuspecting customers, but the reality is that it’s funded by the very financial institutions whose knuckles it claims to rap. Moreover, those who receive the most complaints (i.e. the High Street banks) are the ones who contribute the most to the FOS’s funding. It’s a very cosy relationship, to say the least.”

Yet, it seems to be a case of “carry on regardless”. Politicians who are approached to investigate the FOS tend to ignore the request, or make no more than a token effort which soon fades away. HM Treasury sends out an apparently standard email claiming that the FOS is “independent” and effectively cannot be touched. When asked who then is responsible, there is no further response. Approaches to the FOS board, which is specifically mandated to ensure the organisation’s fairness also yield no response, at least not so far, to the best of my knowledge.

Additionally, “independent” reports on the ombudsman service, such as the Hunt Report, seem to avoid the issue of fairness and focus on administrative or legal matters of lesser importance to those who just want fair compensation for financial mismanagement. As for internal controls, the Service Quality Team will only consider so-called “service issues” which specifically exclude fairness and the merits of decisions. The same applies to the “Independent Assessor”.

To all intents and purposes, the FOS also cannot realistically be taken to court by small investors or IFA’s. Neither can the firms in question. And after all, the whole point of the organisation is to assist small investors who cannot afford to sue the firm or advisor.

Let’s take a look at a few of those comments from the internet.  Space limitations enable only tiny fragment to be shown here, but a search in the internet – with the right keywords – reveals an endless number of such comments, and for over a decade. Below is the tip of the tip of the proverbial iceberg.

  • - Let’s start with a comment from inside: “I hate to admit it, but I have worked for the ombudsman on a short term contract. We were trained in about a week. They said they are not biased, yet the focus is totally on rejecting cases. The percentage for rejecting cases is 80%.”
  • - This sentiment is backed by an allegation from an investor of “yet more financial corruption - this time in the very body that is supposed to provide protection from such practices”.
  • - According to our next commentator, “even if the customer is 100% undoubtedly right, they manage to mess up his rights with their delays if not with their pro-bank decision.” 
  • - There is truly no shortage of sentiments like the following one and the degree of consensus is high: “I agree the FOS is a national disgrace... They are not independent, and hide bad practice and bias behind 'opinion', and should be disbanded ASAP.”
  • - The general reason given for all this is that “the banks own the FOS” and indeed, the organization is funded by the industry, which is not exactly conducive to justice.
  • - “These people are set up to support financial institutions, not the consumer; it is just a PR exercise. They have caused me considerable stress and inconvenience and I will never use them again. What’s the point, they are a toothless old dog licking the feet of the institutions”.
  • - “Had a reply, don’t know whether to laugh or cry!!! I've just had the final response from the Ombudsman and surprise surprise, she agrees with the adjudicator!!!”
  • - “No matter what (these) people tell you, and no matter how much praise and blah blah they tell you about the FOS, and how bad and discouraging they describe going to Court, NEVER EVER go with the FOS, not even if you have their own word that your case is 100% complete and you'd definitely get their support. No impartiality, No fairness, and No efficiency in dealing with complaints”.

Of course, the FOS itself presents many cases in which investors are awarded damages. Nonetheless, the following explanation from a complainant may reconcile at least some such awards with the above comments: “Any testimonies where the customer won a case would be minor ones and just there to keep up the belief that this is actually possible.” In fact, there may indeed be large awards to some customers, but can the public really rely on objectivity and consistency? And who exactly was forced to pay up in the tens of thousands?  

So where do we go from here?  Nowhere, it seems. Although there are various mutterings from parliament from time to time, there are still no mechanisms to ensure that justice is done consistently. There is simply no lobby for those who believe that they have been unfairly treated by the FOS. And there does not appear to be anyone in the UK who is both willing and able to take this on, including the mainstream media. One cannot but gain the impression that everyone who could intervene or investigate, either refuses to do so (“correspondence on this matter is closed”) or claims that it is “beyond their remit”. 

One thing above all seems undeniable. It is high time for a comprehensive and truly objective investigation of the various allegations against the FOS, followed by appropriate organisational and institutional changes. Furthermore, proven past injustices can and should be redressed. It is never too late.  

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