Ministerial Decision Report
Financial Services Ombudsman (Jersey) Law 201-
- Introduction
- The Financial Services Ombudsman (Jersey) 201- legislation establishes an Ombudsman to consider individual customer complaints regarding financial services provided in Jersey. This satisfies the political mandate made in an amendment to the States’ Business Plan 2010. The Ombudsman will have powers to investigate complaints and if upheld, make awards to put complainants back into the position they would have been in had the problem not occurred. The Ombudsman represents a suitable opportunity for pan-island co-operation, bringing likely benefits of improved consistency and efficiency for both customers and financial services providers in the two jurisdictions, as well as cost-savings.
2. Background
2.1 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 investigating complaints. This is especially of value in the complex field of financial services where there may be a great imbalance in knowledge and resources between the parties to a complaint. Determinations are made on the basis of what is fair and reasonable in the particular circumstances of the case, taking into account primary and secondary legislation, codes of practice and industry standards as appropriate. 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 it remains unresolved.
2.2 Currently, if a customer has a complaint about financial services provided in or from within Jersey, there is no body with official powers to take on the complaint, so legal action is the only route available for unresolved complaints and this can be costly and daunting.
2.2 In the autumn of 2009, the States Assembly voted to accept an amendment[1] to the Business Plan 2010 to give legislative drafting time to a new Financial Services Ombudsman Law. Since then, the Economic Development Department has carried out a public consultation on the proposals for the financial ombudsman scheme[2]; developed budget, funding and staffing plans; convened and received input on the funding proposals from a working group comprising representatives of different financial services sectors; worked closely with officers from the Commerce and Employment Department of the States of Guernsey; worked closely with the legislative draftsman over the development of the legislation; and established good communications with the (British and Irish) Ombudsman Association (a professional association for ombudsmen and complaint handlers, including the Crown Dependencies and Overseas Territories), the International Network of Financial Ombudsmen (INFO), and individual financial ombudsman schemes in the UK, Ireland and Isle of Man.
2.3 Two separate briefing meetings were held on 10th October 2013 for the Bailiffs of Guernsey and Jersey on the establishment of a Financial Services Ombudsman with the assistance of a highly experienced, senior Ombudsman from the UK Financial Ombudsman Service[3].
2.4 It is intended that the Ombudsman will be set up by similar legislation in both Jersey and Guernsey and that it is operated as a joint venture with shared staff, resources and premises; funded by the financial services industries in both jurisdictions. Guernsey published a States report on the Ombudsman in September 2013 seeking approval in principle for the establishment of a Financial Services Ombudsman and for the necessary legislation to be drafted. The report was on the Billet d’Etat for 30th October 2013 and was approved in debate on 27 November 2013.[4]
2.5 This legislation will establish an Ombudsman that satisfies the political mandate in Jersey for ‘a Financial Services Ombudsman, not only to demonstrate that we are a quality finance centre but also to ensure that when things do go wrong for consumers we have an adequate, no cost, alternative dispute resolution process in place that is comparable with other jurisdictions’[5] and that can be operated jointly in partnership with the States of Guernsey. Consideration has also been given to recognised standards such as the BIOA criteria[6] and European Commission recommendations and directives[7].
2.6 The legislation will establish the Ombudsman, his/her procedures and powers but the detail of the scope with respect to financial services covered will be set by Order. The funding arrangements will be set out in regulations and the financial services industry will be consulted on the secondary legislation in March/April 2014. This document gives an overview of the primary legislation and outlines what will be proposed in the secondary legislation consultation.
- Overview of the Financial Services Ombudsman (Jersey) Law 201-
3.1 Establishment and general function of the Office of the Financial Services Ombudsman (OFSO)
3.1.1 The primary responsibility of the Office of the Financial Services Ombudsman (OFSO) is to resolve complaints about financial services independently, effectively, quickly, with minimum formality and by the most appropriate means.
3.1.2 The legislation establishes the OFSO as a body corporate with a board of three to five members, including a chairman. The intention is to have a Chairman plus two board members at the outset.
3.1.3 The Minister appoints the Chairman and board members on terms that secure their independence and after seeking the views of the Jersey Appointments Commission (JAC). Board members are subject to a maximum of 10 years’ service. The OFSO can determine the remuneration it pays to board members, subject to any maximum directed by the Minister.
3.1.4 The Board will appoint ombudsmen on terms that promote their independence, maintain the independence of the OFSO generally and act in the public interest. This will ensure the credibility of the ombudsman scheme, so that all stakeholders have confidence in it and in the independence and effectiveness of the Ombudsman in investigating and resolving complaints[8].
3.1.5 Under the legislation, the Minister can give directions or guidance to the OFSO on certain matters that will not compromise the independence of the OFSO.
3.2 Arrangements with other jurisdictions
3.2.1 The development of a Financial Services Ombudsman has presented a suitable opportunity for pan-Channel Island co-operation. While the legislation establishes a Financial Services Ombudsman for Jersey, it includes flexible provision for resource-sharing, co-operation or combining the schemes of Jersey and Guernsey. It will be advantageous to have one entity covering all financial services complaints in the two jurisdictions of Jersey and Guernsey, rather than two smaller ones. Staff will benefit from experience of a wider range of complaints and can share expertise internally leading to a more consistent approach across the islands. There will also be economies of scale with a single operation covering both jurisdictions, requiring only one infrastructure to be set up, rather than duplicating.
3.2.2 It is planned that from the outset, the Ombudsman scheme will be established on a joint basis with a shared, single office in Jersey, with a shared staff and Board. This will have considerable benefits in terms of cost savings from a single infrastructure and consistency in approach for complainants and financial services providers, irrespective of the island from which the financial services were provided.
3.2.3 As will be detailed later, there is rarely a need for complainants and other parties to be seen in person as complaints are assessed by consideration of the information gathered during the investigation of a complaint. Complainants can reside anywhere in the world, so the actual location of the offices does not affect the accessibility of the Ombudsman.
3.3 Complaints volume and staffing
3.3.1 As there is no comparable body handling financial complaints in Jersey and Guernsey, it is hard to draw reliable conclusions about the expected number of complaints the Ombudsman will receive. The budget and plans have been drawn up on the basis of the joint Ombudsman scheme receiving an anticipated 700 ‘mature’ complaints per year, i.e. those that have already been considered by the financial services provider. As well as these mature complaints, there is also likely to be a high number of enquiries that will need to be handled, usually from complainants seeking information or advice at an earlier stage of a complaint.
3.3.2 To service this workload, the staffing proposal is for one part-time Ombudsman, supported by 5 staff to handle complaints, enquiries, administration and management. The Ombudsman will be a senior role, so it is cost-effective to have supporting staff carrying out much of the day-to-day work.
3.3.3 The aim is not to over-resource the office but to have sufficient staffing and systems to handle complaints efficiently and effectively. Arrangements in the first year will need to be on a flexible basis so that staffing can be adjusted in the event of any difference in the actual volume of complaints from estimates.
3.3.4 The staffing plan has been drawn up by evaluation of staffing at other ombudsman schemes and with input from experienced Ombudsmen.
3.4 Remit of the Ombudsman
3.4.1 Categories of persons eligible to refer a complaint to the Ombudsman include:
- Individuals;
- Small businesses, using the European Commission definition of a microenterprise[9]; and
- Charities, trusts, foundations and other bodies as specified by Order.
- The Minister of Economic Development can specify by Order any other category that relates to charities, trusts, foundations or other bodies that appears to be appropriate, taking into account that the Ombudsman should be primarily available to persons lacking the resources or expertise to use other means to resolve complaints (Article 8 (3)(ciii)). The intention, subject to the industry consultation, is that the Order should allow small charities, individuals acting as trustees of family trusts and individuals acting as trustees of their own pension arrangements, such as retirement annuity contracts, to be eligible complainants.
- The legislation also permits the Minister by Order to exclude subsets within those categories on the recommendation of OFSO; being persons that have the resources, expertise or other characteristics to use other means than the OFSO to resolve their complaints. This could be used in future to mirror the actions of the regulator, for example, if the Commission designated a certain group of persons as requiring less regulatory protection.
- As well as being in one of the categories listed in 3.4.1, a complainant also must not be a financial services provider and must, at the time of the relevant act, have had a sufficiently close relationship with the financial services provider in order to complain about its actions. This relationship could be as a client or potential client or any other sufficiently close relationship. The Ombudsman must consult, develop and publish guidelines on relevant relationships. The intention is to allow complaints from appropriate complainants who may not have a client relationship with the entity complained about (the respondent) but who nonetheless can be affected by its actions. These could include an investor in a collective investment fund in respect of which the respondent carries on the relevant business, such as administration; or, for example, the intended recipient of a cheque that was intercepted by a fraudster and deposited into the fraudster’s account held by the respondent.
- The complainant can be resident anywhere, not just in Jersey or Guernsey.
- The complaint must relate to an act in the course of relevant financial services business provided in or from within Jersey. The legislation defines relevant financial services business widely, in Article 9 (1), with reference to financial services legislation including the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008 and also by defining pension and credit business in schedules 3 and 4. The legislation then provides that the Minister must by Order exempt classes of business that are not appropriate to be covered by the Ombudsman, after consultation.
- The Order must take account of ensuring the Ombudsman’s services are primarily available to people lacking the resources and expertise to use other means to resolve the complaint and must consider entities carrying on classes of business without requiring a permit or certificate or registration with the Commission. Consultation on the Order must include with relevant persons in Guernsey; this is so that the range of financial services covered can be as similar as possible in Jersey and Guernsey.
- The financial services industry will be consulted on the Order in March/April 2014. The current policy intention is to exempt broadly the same areas as currently given exclusions/exemptions under financial services legislation, with some exceptions to be considered for those that it may be relevant to include, such as all providers of bureau de change services. (There is currently a turnover-related exemption.)
- In addition, the current policy intention is for the Order also to exempt occupational pensions; certain types of fund business and most trust company business except where it relates to relevant pension business. These exemptions can be monitored and reviewed over time, so that the scope can respond to new developments or to experience with complaints. The detail of the proposed exemptions will be fully set out in the industry consultation exercise on the secondary legislation.
- Complaints need to be within various time limits. In summary:
- the act to which the complaint relates must have occurred after 1st January 2010 (the “starting point”);
- the financial services provider must have already been given a reasonable opportunity to consider the complaint; and
- the complaint must be referred to the Ombudsman within 6 years of the act to which the complaint relates or 2 years after the complainant should have become aware of the cause for complaint. If the financial services provider meets set requirements in handling the complaint, this period can effectively be shortened to six months after the provider completed its handling of the complaint.
- The starting point for the Jersey scheme is set at 1st January 2010 as the first start of the year after the States Assembly voted to introduce a Financial Services Ombudsman. This reduces the amount of retrospection from the full 6 years possible under the standard time limit in the legislation. Guernsey will have a different starting point. It will use the date of the States Report on the Financial Services Ombudsman, ie. 2nd July 2013 (see 2.4).
- The legislation sets a cap of 3 months as the maximum reasonable period for financial services providers to consider complaints, so a complainant will be able to refer their complaint to the Ombudsman if it is still unresolved 3 months after raising it with the provider, or before if they receive the provider’s final response on the complaint sooner and are still unsatisfied.
- If financial services providers meet certain requirements when handling complaints, an abbreviated time limit of 6 months will apply within which a complainant must refer the complaint to the Ombudsman, after receiving a final response on the complaint from the provider. This time limit will be dependent on the provider having a procedure for handling complaints and giving appropriate notification to the complainant of the availability of the Ombudsman and the six-month time limit. It will be in the interests of the industry to provide this information, so that the limited further period of 6 months applies within which the complaint can be progressed to the Ombudsman. This will give the industry greater clarity on the lifespan of complaints and on when they have run their full course.
- These time limits apply equally to both regulated and unregulated entities and are in line with those applicable at other financial ombudsman schemes. It is intended that the detail in the legislation can be referred to or used as part of standards in Codes of Practice developed for financial services providers. The Ombudsman scheme is not a replacement for effective complaints handling within providers but will be available for what should be the minority of complainants that remain dissatisfied at the end of the process. The legislation allows for the OFSO to publish a model procedure for complaints handling but cannot require any financial services provider to adopt it. The Ombudsman’s role is to handle individual consumer complaints and is distinct from that of the regulator.
3.5 Handling of complaints by OFSO
3.5.1 Once a complaint is received by the Ombudsman it will be assessed as to whether it is within the remit of the scheme as outlined in 3.4 and rejected if not. It can also be rejected if the Ombudsman considers there are compelling reasons to do so, such as if the complaint has no real prospect of success for example where the complainant has not suffered compensatable loss; or if there is a more appropriate forum to consider the complaint. The legislation cites some of the reasons for rejection and requires the OFSO to publish its policy on rejection of complaints.
3.5.2 The Ombudsman will then investigate the complaint as he or she sees fit and will have powers to require information and documents that are considered necessary or useful for the investigation and determination of the complaint to be provided. These are specified in Part 5 article 19. Parties to the complaint will be given the opportunity to provide information and to comment on evidence considered by the Ombudsman to be material to the determination.
3.5.3 Complaints will normally be considered on the basis of the documentation and information provided by the complainant and the financial services provider, without a hearing, unless the Ombudsman considers it necessary. Where appropriate, attempts can be made to mediate the complaint and bring the parties to agreement on a solution.
3.5.4 If a complaint is not suitable for mediation or fails to be resolved by that route, the Ombudsman will determine the complaint. In practice, the stages of gathering information on a complaint, initial consideration of the issues and attempts to resolve the complaint through mediation can be delegated to a case handler. However, only an Ombudsman may make a formal determination of a complaint.
3.5.5 The Ombudsman will determine a complaint by reference to what is fair and reasonable in all the circumstances of the complaint and must take into account the relevant law; any relevant direction, Code of Practice or regulation; and if appropriate what the Ombudsman considers to be good practice at the time of the act leading to the complaint. Before issuing a determination, the parties to the complaint will be given a preliminary view on the dispute or draft determination to give them a further opportunity to comment, disagree or put forward views.
3.5.6 Once a complaint has been determined, the Ombudsman will give the parties to the complaint a written statement of the determination. As the Ombudsman is intended to be the final arbiter on a complaint, if the complainant accepts the determination, it is binding on the financial services provider and the complainant. No further legal action can be taken on the same subject matter once a determination becomes binding. No provision is made for an appeal in the Law, so judicial review is the only available option for reviewing determinations of the Ombudsman.
3.5.7 If the Ombudsman upholds the complaint in favour of the complainant, the determination may include an amount of money to be paid by the financial services provider to the complainant to compensate their financial loss and also material distress or inconvenience, where appropriate. The determination can also require the provider to take such steps in relation to the complainant as the Ombudsman considers fair and reasonable.
3.5.8 The legislation sets the maximum amount that can be awarded at £150,000, which is in line with financial ombudsman schemes in other jurisdictions such as the United Kingdom and the Isle of Man.
3.5.9 Awards are enforceable by the complainant as a debt due from the financial services provider. The legislation also gives the Ombudsman discretion to assist the complainant, if warranted, in recovering an award. (Other Ombudsman schemes such as the Legal Ombudsman in UK allow this.)
3.6 Interaction with other bodies and publishing of information
3.6.1 While there will be restrictions on information disclosure, the Ombudsman can disclose information to the Commission or other statutory bodies to assist them to carry out their duties. Data from the Ombudsman on complaints can be useful for regulators both for supervisory purposes and for developing regulation. A memorandum of understanding will be drawn up with the Commission describing how the bodies will co-operate in the carrying out of their respective duties.
3.6.2 The Ombudsman will publish an annual report on its operations, which will include information on the caseload and the Ombudsman’s approach in deciding complaints. Giving this feedback to the financial services industry can be useful to inform future complaints handling.
3.6.3 Good communications have been established with existing financial ombudsman schemes and the scope of the Channel Islands’ Ombudsman will dovetail with that in other jurisdictions to avoid duplication.
3.7 Budget
3.7.1 The set-up costs for the joint Financial Services Ombudsman are estimated at £183,317, with operating costs for the first year of £582,626.
3.7.2 The scheme will perform a quasi-judicial role with powers to make binding determinations so it needs to be resourced sufficiently to fulfil that role. Experts at other ombudsman schemes have reviewed the budget figures and the aim has been to produce realistic estimates for running the service.
3.8 Funding
3.8.1 The provisions in the legislation ensure that the funding for the establishment and operation of the OFSO will come from financial services providers and that the service will be free to complainants. The OFSO’s annual accounts must be independently audited and submitted with a report on its operations to the Minister of Economic Development for laying before the States.
3.8.2 OFSO will secure its funding through levies on financial services providers generally and also through case fees on providers in respect of complaints against them. The law sets out that the fees and levies must raise sufficient income to enable the OFSO to carry out its functions and to provide sufficient reserves. The States are given powers to make Regulations to provide for case fees and levies.
3.8.3 As the Ombudsman is intended to be a pan-island scheme, it will be funded by the financial services industry in both jurisdictions of Jersey and Guernsey. At the outset it will be on a 50:50 basis between the islands. Over time, this can be revised to reflect the actual ratio of complaints from each on a ‘user pays’ basis. A funding model has been developed with the assistance of industry working groups and from assessment of existing mechanisms in other ombudsman schemes. The planned industry consultation on the secondary legislation will set out more detail on funding but broadly it will be sought from all providers in Jersey and Guernsey with relevant customers and conducting financial services business within the scope of the Ombudsman (the ‘funding population’).
3.8.4 A start-up fee will be charged to cover the initial set-up costs of the Ombudsman scheme and to start building up reserves. An annual levy and case fees on complaints taken on by OFSO will be charged to cover operating costs and to bring reserves up to the desired level.
Secondary legislation to follow:
Article 8 (3)(c) Order from Minister to specify charities, trusts, foundations or other bodies that can be eligible complainants
Article 9 (4) Minister must by Order exempt classes of business that are not appropriate to be covered by OFSO
Schedule 2 Para 3 (1) Case fees Regulations
Schedule 2 Para 4 (1) Levies Regulations
Resource Implications
The set-up costs will be split 50/50 between the Economic Development Department and Commerce & Employment (States of Guernsey) and fully reimbursed by OFSO once it has the power to levy the industry. The Law allows the collection of the levy at the earliest opportunity to ensure the amount is repaid as soon as possible.
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