As part of the 2-year review of the Financial Services and Markets Act, the Treasury has asked the FSA and the ombudsman service to review the circumstances in which the FSA takes regulatory action instead of individual cases being determined by the Ombudsman and also whether in specific circumstances decisions by the Ombudsman should be subject to some sort of appeal.
Clive Briault, Managing Director Retail Markets at the FSA, said:
“We are seeking to clarify the differing roles and responsibilities of the FSA and FOS when ''wider implications'' cases arise. In particular we want to set out more clearly – for both firms and consumers – how and when the FSA will deal with such cases through the use of our regulatory powers, and the outcomes we want to achieve through doing so."The paper reflects the issues and ideas raised with us during our discussions with stakeholders earlier this year. Our discussions revealed that there is no clear consensus about whether any changes are needed to the current arrangements or what they should be, but there were some common threads – which we have focused on in our proposals.”
Walter Merricks, Financial Ombudsman Service chief ombudsman, said:
"Our discussion with stakeholders identified that consumer and industry groups wanted more discussion and input on decisions that will have a wider impact. In the paper, we propose to build on our existing Industry Liaison Group arrangements which should provide a more formal mechanism to achieve this, without undermining our ability to resolve disputes quickly and with minimum formality. We also consult on the use of ''test cases'' as an alternative to us making decisions on cases that turn on a legal issue; a similar mechanism was available in the former PIA and Banking Ombudsman Schemes."
The Paper also proposes that the FSA and the ombudsman service should nominate named individuals within both organisations as points of contact for “wider implications” cases and be responsible for communication, liaison and coordination.
They would:
- be available to receive recommendations from firms, trade bodies and consumer bodies; and
- act as liaison points between FSA and the ombudsman service in order to ensure that the referral process and any feedback is administered efficiently.
The paper also looks at the legal and practical issues that would be involved in introducing an external appeals system that would operate after an Ombudsman’s decision. It seeks views on whether such a mechanism is necessary and outlines some of the practical issues surrounding appeals.
Background
- CP04/12: FSMA Review: Financial Ombudsman Service (July 2004) can be found here". Responses are sought by 1 October 2004.
- The Economic Secretary Ruth Kelly M.P. announced the FSM Act + 2 review in a Commons statement on 4 November 2003. She said: "I consider it appropriate that the circumstances in which the FSA takes regulatory action instead of individual cases being determined by the Ombudsman should be reviewed. In addition I consider it appropriate to examine whether Ombudsman decisions should be subject to some form of appeal in specific circumstances. It is vital that firms and consumers alike have confidence in the Ombudsman’s decisions even when they do not like them."
- “Wider implications” cases could be those where there is a widespread issue or issues which could give rise to significant consumer detriment. The Ombudsman is in a unique position to see such an issue arising across a number of firms, although it may consider the implications in any one case to be of sufficient importance that the FSA’s attention should be drawn to it. Equally, the implications could indicate a possible materially detrimental effect on the financial resources of firms, or on the market in general.
- Where a potential “wider implications” case is identified, the FSA can consider whether a regulatory solution would be preferable to the ombudsman service deciding individual cases. The FSA may (for example) take supervisory or enforcement action or offer an interpretation of existing rules. More generally, the FSA may consider the need for new rules, or guidance to clarify existing ones. The ombudsman service may suspend or terminate handling relevant complaints, depending on the stages they have reached, whilst the regulatory action is carried out. This might be done, for example, where the FSA is taking action that might result in redress being paid to consumers.
- The FSA and the ombudsman service appointed a group of expert stakeholders to oversee the scope, terms and conduct of the early consultation process overall and to have input into the shaping of the consultation document. For more details see FSA Press Notice 127/2003.
- The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection of consumers; and fighting financial crime.
- The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.
