Financial Ombudsman faces up to the big issues: PPI and Arch Cru
Facing questions about how it was handling two major scandals, Natalie Ceeney, chief ombudsman, and principal ombudsman Tony Boorman did their best to reassure MPs that their processes were fair and fit for the purpose even if their resources were stretched by the huge volume of complaints. Ms Ceeney said that FOS expected to resolve 200,000 complaints this year but that new complaints were expected to reach around one million, mainly driven by the 3000% increase in complaints about the mis-selling of payment protection insurance (PPI).
The prime responsibility for the resolution of the PPI scandal lies with the firms, said Ms Ceeney, with most of them expecting that it will take another 2-3 years to work through the complaints and review their back books of business in conjunction with the Financial Services Authority. Only after that will the volume that require adjudication by FOS become clear. The FOS will be issuing guidance soon on what it considers to be fair compensation for mis-sold PPI policies, partially to head-off many potential referrals to itself.
Arch Cru looms large
With half of the cases that FOS has dealt with in its entire history down to what Ms Ceeney described as "mass detriment" (mis-selling to you and I) it is clearly working hard to ensure that proportion does not rise as a result of the debacle over the Arch Cru funds. Mr Boorman said that it had already dealt with 150 complaints since the funds were suspended in March 2009, although he was warned by Alun Cairns (Con, Vale of Glamorgan) that this could leap as there were 20,000 investors caught up in the collapse. Mr Cairns appealed for an industry-wide approach to simplify and speed-up the compensation process especially now Capita, which acted as authorised corporate director for the funds, has put a £54m "no prejudice" offer on the table.
Mr Boorman set out how FOS was approaching the problem, explaining that the individual circumstances were often complex with the need to unravel how much of the investor's loss was down to bad advice on the part of an IFA (for FOS to deal with) and how much was down to everything else that was going wrong (what the Capita fund is for). Mr Cairns said that MPs who have set up a special all party group to investigate the Arch Cru affair were still pressing the FSA "to bring together all parties so that we can avoid thousands of complaints going to the financial ombudsman".
Looking beyond these immediate problems, Ms Ceeney said she welcomed the provisions in the draft Financial Services Bill to give the new regulators the power to intervene earlier in potential scandals which she felt could nip future mis-selling crises in the bud. She also felt that the proposals to allow organisations much wider scope to submit "super-complaints" to regulators (already extended by the recent Enterprise Act) would be helpful.
Whether FOS continues to cope - just about - with the huge volume of complaints does seem to depend largely on the ability to create broad guidelines in these "mass-detriment" scandals and get them to stick. With PPI this will rest on the banks being prepared to accept the guidance on compensation FOS told MPs it will be producing soon. This really has to be a wait and see exercise after the banks ill-judged decision to fight the FSA in the courts and their subsequent climbdown. I hope commonsense prevails.
Similarly, with Arch Cru. Accepting what Tony Boorman says about the potential for individual complexities, especially where bad advice from an IFA is a key factor, it should be possible to drive through a scheme that deals with the majority of cases quickly and effectively.
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