Policy position: Financial Ombudsman Scheme for Jersey and Guernsey
Policy position: Financial Ombudsman Scheme for Jersey and Guernsey
Obective
To update the Minister and Senior Management on the broad policy decisions recommended before amending and updating drafting instructions and issuing a targeted industry consultation.
Background
Ombudsman schemes offer independent complaint resolution as a more accessible alternative to the courts for most people. Schemes are usually free to the complainant, legal representation is not required and the approach is inquisitorial with the ombudsman impartially investigating complaints. This is especially of value in the complex field of financial services where there may be a great imbalance in information and understanding between the parties to a complaint. Determinations are made considering not just the legal position but also what is fair, reasonable and just in the particular circumstances of the case. Ombudsman schemes do not alter the normal relationship between a service provider and the customer but are available as a last resort, if the service provider has had a reasonable opportunity to deal with the complaint but has not resolved it.
Ombudsman schemes originated in the public sector and the concept has been taken up in the private sector. Jersey already has one scheme that meets the criteria set by the British and Irish Ombudsman Association: the States of Jersey Complaints Board, which covers complaints about a decision or administration process by any minister or department of the States.
Purpose of the scheme
To provide an independent dispute resolution service for customers of financial service providers in Jersey. The Ombudsman will determine complaints based on what is fair and reasonable in the circumstances and can make awards to make good financial loss incurred by a customer. The service will be free to the complainant.
Policy proposal
In 2009 the States of Jersey committed in its business plan to the establishment of a financial ombudsman scheme. Such a scheme has been considered in Jersey over many years and in 2002 a draft set of drafting instructions were circulated. The current policy position broadly follows those instructions, albeit they were very detailed and perhaps somewhat prescriptive in some areas (for example limiting the ombudsman’s discretion in areas such as information-sharing with the JFSC). One major area where this proposal is different concerns the independence of the scheme. Otherwise the 2002 instructions have been reviewed and broadly followed with some updating.
Independence
It is crucial that the ombudsman scheme is independent of the industry about which it considers complaints, both for human rights issues and as a key principle of ombudsman schemes (ref. British and Irish Ombudsman Association criteria, EU Commission Recommendation 1998/257/EC on the principles applicable to out-of-court dispute resolution schemes). It is proposed that the scheme is set up as a body corporate with a predominately public-interest Board to appoint and protect the independence of the ombudsman. If a shared approach is taken with a single scheme to cover Jersey and Guernsey, the Board could consist of 2 board members from each island with a chairman appointed by the States of Jersey and of Guernsey. The chairman’s appointment could be on an alternating basis: a chairman from Jersey for a set term, then Guernsey and so on. It may be that issues of a jurisdiction-specific nature arise from time to time, on which the ombudsman could need guidance from the Board. Subcommittees could be used to consider such cases, composed predominantly of members from that jurisdiction.
The ombudsman scheme and Board would be independent of the Minister for Economic Development and the States, with the Board reporting to the Minister on an annual basis and the Minister laying the annual report and accounts before the States.
Scope of the scheme
It is proposed that the main framework of the scheme is covered in primary legislation, with the ability to provide additional detail by order, such as the activities that are covered. This will give better flexibility to amend the scheme over time, in the light of complaints experience. This has been the approach in the UK and has been useful even with its near-30 years experience of financial ombudsman schemes.
The ombudsman scheme will cover all providers of financial products and advice operating in or from Jersey, both regulated and non-regulated. The aim is to provide a comprehensive service, so that whether utilising investment services or taking out a loan for a new car, a customer can have the protection of knowing any subsequent, unresolved complaints can be referred to the Ombudsman.
Legislation will need to be clear that the scheme covers the provision of financial products and related advice and not all services offered by providers of financial services. For example, the Scheme is intended to cover the sale of travel insurance by travel agents but not the sale of holidays.
Regulated areas: | Not directly regulated: |
Banking Collective investments Fund services General insurance Investment business Long-term insurance Money service business Trust company business | Consumer lending: loans, mortgages, overdrafts, hire purchase, leasing Pensions |
Registration
There will need to be a requirement to register with the ombudsman scheme to assist with funding, particularly to capture the unregulated firms, which would otherwise be hard to identify. This could be facilitated through the Regulation of Undertakings licensing regime in Jersey, albeit the legal requirement to register may be obligation enough.
Consideration of complaints
Complaints will be assessed first as to whether they fall within the jurisdiction of the scheme: the complaint must relate to financial services provided in or from Jersey; must be from an eligible complainant; must be within the time limits; must have been considered by the financial services provider first and the complaint must be eligible.
The ombudsman will consider complaints within the scheme’s jurisdiction and can seek to mediate a resolution between the parties and also will have powers to make a determination, if the complaint is upheld, that puts the complainant into the position they would have been in, had the act or omission leading to the complaint not occurred.
Territorial Scope
The scheme will cover complaints relating to the acts or omissions of financial service providers who operate in, or from, the Bailiwick of Jersey. There is no restriction as to the residence of the complainant.
Complainants
The aim of financial ombudsman schemes is to allow individuals[1] an alternative redress route, as they might feel daunted at progressing a complaint against a financial firm through the courts. It is not just that a financial firm is likely to have more financial and legal resources, but also more knowledge and understanding about the subject matter.
The definition of who can bring a complaint to the ombudsman scheme will be broadly modelled on the UK’s Financial Ombudsman Service (FOS) but with additional detail tailored for Jersey’s financial services market, namely:
- Consumer/private individual;
- Small businesses;
- Small charities;
- Trustee of a trust (with limits, currently being discussed with the Financial Services Commission).
The Isle of Man (IOM) scheme currently only covers private individuals but they are considering extending this to trustees, in order to be able to consider certain pensions complaints that are currently outside its remit.
Ineligible complaints
The legislation will allow for a number of conditions where complaints may be dismissed without consideration or the Scheme can cease to act. This list of conditions is based on the UK FOS’s current approach, as were the 2002 instructions. Examples include where:
- the complainant has not suffered financial loss;
- the complaint is frivolous or vexatious;
- The matter would be more suitably dealt with by a court or other ombudsman scheme;
- The dispute relates to the legitimate exercise of discretion under a will or private trust.
Time limits
As per 2002 draft, the general time limits for referral of a complaint are below, although the ombudsman should have discretion for exceptional circumstances:
- Complaint should have been through the financial services provider’s complaints procedure under which the provider has 3 months to send a final response;
- Complaint should be received by the ombudsman scheme within 6 months of a final response from the provider;
- Complaint should be received by the ombudsman scheme within 6 years of the act or omission that is the subject of the complaint or within 2 years of when the complainant became aware of the act or omission (this 2 years mirrors the IOM scheme, the UK FOS allows 3 years).
The Scheme needs a starting date from which complaints can be considered. Complaints by their very nature are retrospective, concerning acts or omissions that have occurred previously, so it is proposed that the scheme can consider complaints relating to acts or omissions occurring on or after 1st January 2010.
Powers
In order to be effective the scheme must be able to inquire into a complaint and require documentation to be provided. The scheme should have powers to require the provision of information by financial services providers; where failure to do can be punished as if guilty of contempt of court. Similarly in the event of failure to comply with a determination, it should be enforceable through the Royal Court.
Awards
If the final determination of the ombudsman is to uphold the complaint in full or in part, his award may be a monetary award payable to the complainant or a direction to the financial services provider to take steps that are just and appropriate. The overall aim is to put the complainant back into the position they would have been in had the act or omission leading to the complaint not occurred. It is proposed that the monetary award is limited to a maximum of £150,000. The UK FOS is planning to extend its limit from £100,000 to £150,000 and the IOM has privately indicated it plans to follow suit.
Appeals
The ombudsman scheme is intended to be the final arbiter on the dispute. It is proposed to mirror the UK’s approach with ombudsman decisions and have them binding on the financial services provider and only binding on the complainant if they accept the decision. This satisfies ECHR issues by giving complainants the option of taking the case on to court; however, the UK FOS reports that in practice this is rarely exercised.
Financial services providers may seek a judicial review in the Royal Court on the process adopted by the ombudsman in making the determination but not on the determination itself.
Best practice loop
The ombudsman scheme should not operate in isolation, as over time useful lessons can be learnt from its complaints experience. The ombudsman scheme should be able to share information with the following:
– feedback to JFSC on general regulatory breaches/issues identified; specific alerts on financial service providers where a significant breach is occurring. This should be at the Ombudsman’s discretion and without file-sharing, as financial services providers need to trust the relationship with the ombudsman scheme and provide full information to allow complaints to be investigated.
– feedback to Trading Standards and Jersey Consumer Council in relation to consumer credit complaints experience
– feedback to industry on the ombudsman’s procedure with investigations, best practice in specific areas with high complaint volume
– information aimed at customers publicising the ombudsman scheme and potentially targeted at specific areas based on complaints history.
FUNDING
Budget
There will be a need to establish an office, although this would not be physically undertaken until the States passes the legislation. This would cater for the Board, which would operate on a non-executive basis, as well as a part-time ombudsman. Staff-wise there should be an office manager and potentially up to 3 case handlers for each of Jersey and Guernsey plus administrative support. The office manager should be responsible for both offices in Jersey and Guernsey and be a shared cost. Alternatively, if Guernsey were content that there be a single office (in Jersey) the overhead could be divided equally after Guernsey joined the scheme.
The Isle of Man has an ombudsman panel who act as and when required on individual cases, plus 2 case handlers (plus 0.5 manager plus admin support).
Funding model
It would seem sensible to base the funding broadly on the UK approach. The UK FOS is funded entirely by industry, the IOM scheme is currently funded entirely by IOM Government. In the UK around 20% of the FOS’s funding comes from an annual levy on firms covered by the service and 80% from case fees of £500 which are charged to firms, regardless of outcome, on the 4th and any subsequent complaints in a year. So the first three complaints in any year are free, giving some incentive to limit the number of unresolved complaints. This weighting towards case fees is favoured by the UK industry and we would seek to make this an important part of the consultation to ensure that Jersey’s industry agrees. This should not slow the drafting process, as provision should be made for fees and charges, however imposed, in any event.
At the start of the ombudsman scheme in Jersey, full funding will be needed from a levy, albeit a start-up grant from the States would be advantageous. The levy in the UK is based on the proportion of complaints from each sector and the market share of each business within the sector. We need to consider what data is available in order to reach an equitable levy on different financial services providers in Jersey.
Options
- Flat fee for all (inequitable on small local firms vs multi-national businesses)
- Graded fee for larger sectors such as banking and insurance, which could be based on:
- Number of employees – data available potentially
FOS uses:
- Number of accounts for deposit-takers;
- Annual gross premium income for life and general insurers;
- Number of regulated advisers in financial advice firms;
- Relevant income for payment service providers;
- Annual income for general insurance mediation.
FOS charges a flat fee of £50-200 for fund managers, collective investment schemes, personal pension schemes, stakeholder pension schemes, dealers, corporate financial advisers, cashplan health providers, credit unions, friendly societies, home finance firms.
Recommendation:
The Minister is recommended to approve the above policy position.
3 December 2010.
gov.je