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Evidence submitted to the
Lord Hunt Review of the Financial Ombudsman Service
This document has been very slightly edited to add a few words and correct typos and punctuation

From Mr Paul Grenet

Background and brief summary
My experience of the FOS has been whilst pursuing a complaint against a bank acting on behalf of an aged Aunt, using Power of Attorney. I accepted the Ombudsman's decision, but after the settlement cheque arrived I learned that the FOS actually had guidelines on taxation and compensation interest rates which they had not told me about, and the Ombudsman's award fell over £8000 below the figure required by these. If FOS had told me of these guidelines, I would never have accepted their decision. For 18 months I attempted to get the FOS to discuss and review the way the decision was reached but they refuse to discuss or explain the reasoning, or show me their calculations. Their only explanation is that an Ombudsman's decision, right or wrong, cannot be changed. My evidence is based on my experience of the FOS and Independent Assessor during these events.

What claimants expect from the FOS
Approaching the FOS for the first time is a daunting experience. Professional help is discouraged (" We prefer to hear from you in your own words ") and expenses will not be paid, so most claimants have to rely on their own wits. The FOS recommends its website as a source of help, and I think claimants have a reasonable right to expect that the information and policies advertised on the web site will be followed. This turns out not to be so, indeed the Chief Ombudsman, Walter Merricks, has told me that Ombudsmen are not required to follow the guidance policies published by the FOS. A crucial reason for most complainants is to have the financial business or firm's hugely complex compensation calculations checked by experts, but the FOS generally does not do this, though this is not explained to claimants. It is well known, however to the firms, who can take advantage of this loophole when making compensation offers.

My experience with the Adjudicator
The Adjudicator's first letter to me, summing up the issues, included two points from my written evidence but omitted several others. She also added two points I had not made at all, one of them trivial which had been dropped by me years before, but still appeared in the firm's evidence. She therefore used the firm's evidence, rather than mine, to assess my case. She has apologised, but the standards applied are obvious. Omitting important issues and inserting trivial ones, throws doubt on her abilities. Additionally she showed my letters and evidence to the Bank, but I was not shown theirs, she mis-understood the amount that was intended to be invested by an staggering £44,000 (though the Ombudsman eventually corrected this), she did not pick up crucial dates even though these were written on the contract documents, in fact she did not accept that the financial documents signed by my Aunt and the firm actually formed a contract at all. She thought compensation interest paid as bare base rate was fair even though any number of higher rate accounts were available. She declared an old lady (84) who inherited a portfolio to be an experienced investor, though she only had bank and building society accounts before this and never traded any shares. A final amount invested by the Bank was £27,000 more than originally agreed, without written confirmation that my Aunt agreed to this change, but this did not concern the Adjudicator. She was unconcerned that my Aunt aged 84 had been advised to reduce her cash assets to 7% of her wealth. She thought the firm had adequately monitored my Aunt's investments even though, when she became ill and entered a care home she had insufficient funds in cash to pay for her initial month's fees. She approved the firm's offer as fair and reasonable even though it wrongly included a 20% tax deduction, but could not explain why tax had been deducted when I asked her. I do not think the Adjudicator had adequate skill and experience to handle a case of this complexity.

My experience with the Ombudsman
When I realised that the Adjudicator had not grasped the main issues, I asked for an Ombudsman to make an independent review of the case. I also took independent professional advice to better make my case with the Ombudsman. After six months delay, the Ombudsman issued his decision. He overruled the Adjudicator on two points but still found the offer to be fair and reasonable and found no fault with the 20% tax deducted by the Bank. The decision contained no calculations to show how the compensation put my Aunt back to where she would have been without the firm's mistake. My professional adviser had said that the advice my Aunt had received would have caused a failure had it been offered in the examination for the financial planning certificate, but the Ombudsman thought the advice was just fine. My adviser stated that the advice to leave only 7% in cash at age 84, was negligent, but the Ombudsman saw nothing wrong with it. I am not certain that the Ombudsman or Adjudicator properly understood the case.

His decision also contained the same error in the same crucial date that had been made by the Adjudicator. The correct date was written on the contract documents, so I wonder how careful and independent the Ombudsman's review of the case had been, to repeat a mistake made by a junior even though I had drawn attention to it. Once again, the Bank was shown my evidence but I was not permitted to see or comment on theirs. No draft decision was offered nor was I was permitted any further opportunity to comment or draw attention to other errors in the decision. The Ombudsman made his decision and I could take it or leave it.

I was appalled, but took the view that we had reached the end of the road and had no option but to accept. I took the view that taking the Bank to Court would be unlikely to succeed as they would argue that they had met the Ombudsman's requirements and the Court would accept that, given that the FOS is the expert in this field. To get the compensation paid quickly, I accepted the offer (which I knew was binding) and thought that was an end to it.

But information had been withheld by the Adjudicator and Ombudsman
When the firm's cheque arrived it became obvious that both the Ombudsman and Adjudicator had not been fully open with me. The firm's explanation of its calculations drew my attention to FOS published guidelines covering tax and compensation interest rates which, if followed, would have increased the redress by over £8000. FOS had not told me of these guidelines even though the Chief Ombudsman says that a key reason for the guidelines is to assist firms and consumers to settle by agreement, so it follows that the guidelines must describe best practice. Neither the firm nor the FOS mentioned the guidelines until after my acceptance of the (binding) decision. I would never have accepted the decision if I had known it to be £8000 below the FOS guideline figure. I asked the FOS to review the outcome, I did not wish to revisit all the factors in the decision, but I was shocked that information on the guidelines had been withheld, and did expect the calculations to follow the guidelines.

My experience with the FOS complaints procedure
In the first instance I asked the Adjudicator to explain the reason why the FOS recommended offer did not comply with its own guidelines on tax and compensation interest rates. After three months no explanation was forthcoming so I asked the Chief Ombudsman to intervene. He did not bother to reply, but I was then contacted by a member of the FOS Service Review Team (the SRT is essentially the FOS complaints department). Rather than make an independent review of my complaint with a fresh look at the facts, he turned for advice to the same ombudsman who had recommended the offer as fair and reasonable. Unsurprisingly the Ombudsman thought nothing was wrong with the tax or the interest rate used, though if I could produce my Aunt's tax records going back 8 years, he would review the tax issue. I produced these and after examining them, the Ombudsman changed his mind. He rejected my assertion that tax should be 5%, but he did now think it should be 10%. He did not explain why both he and the Adjudicator had been able to recommend the original offer (taxed at 20%) without considering the tax documents.

In fact everything the Ombudsman said about tax turned out to be wrong. The firm accepted my view that 5% was correct and repaid some money, but later the Principal Ombudsman overruled everything and ruled that the award was not taxable at all. For month after month of arguments FOS defended the Ombudsman, arguing in favour of a position that was incorrect and contravened FOS documented guidelines. One has to ask how this could have happened and I suggest that an examination of the Service Review Team and its procedures may be overdue.

FOS guidelines said all along that the award was not taxable, so in the light of the fact that this Ombudsman was now proven to be fallible, I expected the FOS to reconsider the interest rate guidelines and the £8000 shortfall. Unconcerned by the obvious contradiction (they admitted the Ombudsman had got the tax wrong !) FOS continued to maintain that the Ombudsman is always right, his decision cannot be overruled, no explanation or calculations to explain of the shortfall are required and that is an end to it. They did however say that if the firm had not made an offer they would have applied the guidelines, but since the firm did make an offer they will not apply them unless the offer was significantly out of line with "what we would have awarded had we needed to" in which case the offer would be "readjusted". Since no readjustment was made it was clear that FOS considered an £8000 shortfall to be insignificant. I asked the Independent assessor to help.

My experience with the Independent Assessor
By the time I wrote to him, the firm had already repaid the overpaid tax and I thought the tax issue was closed. This repayment reduced the shortfall to £4800, the portion resulting from the compensation interest rate being paid at bare bank rate rather than bank rate plus 1% which the FOS guidelines required. The Independent Assessor agreed with me that the shortfall was significant and asked the FOS to take another look at it. The Principal Ombudsman simply refused to discuss his request "the position is that the Ombudsman's decision is final". No explanations of why £4800 was not significant, no calculations. The Independent Assessor awarded me £350 by way of redress because the FOS had not mentioned the guidelines, but I was not prepared to be bought off with this gesture. The issue here is an old lady's savings, not my inconvenience.

The Independent Assessor was unconcerned that the FOS refused to respond for his request for a review, at any rate he did nothing further to instruct them to provide an answer, though he did have further actions available to him which would have forced the FOS board to explain the Ombudsman's reasoning.

My experience with the Principal Ombudsman
In his response to the Independent Assessor, at the same time as advising that the Ombudsman's decision was final and could not be changed, the Principal Ombudsman decided he would in fact order a change in the award. The tax the Ombudsman has approved, first at 20% then 10% was now stated to be wrong. The award was not taxable at all and a further £960 would have to be returned to my Aunt. This gave rise to a problem…how can the award be changed if the Ombudsman's decision was final and cannot be changed. The solution chosen was to pin the blame on the unfortunate Service Review Team who knew nothing of this affair until six months after the compensation cheque for the wrong amount had been received and banked. They had no part in the flawed original decision in any way yet the Principal Ombudsman blamed them. The bank had always made clear their intention to reduce the redress payment by 20% tax. Their calculation showed this in letters written two years before the Ombudsman reached his decision. It was always part of the Bank's offer and was an inherent part of the award the Ombudsman recommended as fair and reasonable. Despite this, the FOS claim the Service Review Team made the mistake and repaid both tax refund and compensation out of FOS funds. So far as I know the Bank was not asked to give the tax back.

The role of the Independent Assessor in regulating the FOS
The Independent Assessor cannot be regarded as independent in any real sense of the word and his terms of reference are so weak that he can have little real effect on how the FOS operates. His office is located at a PO Box. His real address, telephone number, fax and email are deliberately kept secret. There must be a reason why this information is not published and I can only guess that it is to disguise the location of the Independent Assessor's premises, indeed he may even be housed in the FOS headquarters. Whether this is correct or not, they are obviously hiding something. Added to this is the fact that the Assessor is not independently appointed but chosen ( and probably paid ?) by the FOS Board. Furthermore he took up his post only two months after ceasing to be an FOS board member himself. His terms of reference are toothless, he can make recommendations to the Chief Ombudsman and Board but they have no force. The FOS can ignore them if they wish with the sole proviso that in such a case they publish their reasons in the Annual Report. No ordinary person would regard this as truly independent.

Even within these shallow arrangements the Assessor is too close to the FOS. In the case of my Aunt he asked the FOS to review the outcome of my complaint, he told me that he reserved the right to make a formal recommendation in the light of their reply. They refused to reply, so I enquired why a formal recommendation had not been forthcoming and he responded " the response I have received from the Principal Ombudsman has left me in no doubt that FOS would not have accepted any recommendation I might have made on the interest rate issue". So the Independent Assessor, instead of independently issuing his recommendation thus forcing the Board to address his request, cosily discussed the matter with the Principal Ombudsman and when he found his recommendation would be ignored, he just gave up. I wonder why he bothered to ask FOS to investigate in the first place if he is prepared to accept a blank refusal to respond.

I believe the Independent Assessor should be appointed independently and should be able to investigate decisions, or at the least require FOS to review a decision in circumstances where there is cause for concern. His terms of reference should be made much more assertive and powerful and he should have his own office and staff demonstrably separate (independent !) from the FOS. It would be better if he was not an ex-FOS employee.

Should the FOS vary its view of what is fair and reasonable,
dependent on whether a firm has submitted an offer of compensation or not ?
It is FOS policy that firms which submit offers of compensation are treated differently from those which do not make an offer. Few ordinary people will be able to understand this. I would like to know the reasoning behind this policy. FOS policy requires a claimant to be put back where they would have been financially, if the mistake had not been made. For every case there is a particular amount of money which achieve this, and this amount is not in any way dependent on the tactics used by the firm's complaints department when the error is discovered 5 years down the track. This policy is not made known to claimants so far as I know, yet the professional claims managers at the firms are well aware of it. All the firms must know that if they submit an offer there is a good chance that the FOS will not check the calculations, nor will the offer be compared with the FOS in-house guidelines. In the light of this a good tactical move would be to submit a low offer and hope the FOS lets it though without checking.

A good example of the use of this policy by a firm is in the case of my Aunt. The firm proposed a reasonable offer and backed it up with its own calculations. FOS said fine, it looks reasonable, we don't need to check it. In fact the interest rate used was not reasonable ( a higher rate was available anywhere and it was 1% below the FOS recommended figure) and a tax error was not noticed resulting in an underpayment of £8000. But because the offer met the FOS's requirements to be allowed though without checking, it got though the net.

I know this is definite FOS policy, I have it in writing from the Service Review Team and the Independent Assessor. It is a deeply flawed policy, unfair to claimants and biased in favour of firms. FOS should review this policy.

Should the FOS check a firm's calculations ?
I think it likely that every claimant who asks the FOS for help expects that a firm's calculations will be checked but this is rarely the case. The Independent Assessor has, on several occasions, drawn attention to the problem caused when FOS just accepts the firm's calculations. I have asked to be shown the calculations relevant to my case but they are never produced and I suspect that no such calculations were actually made, if FOS had checked the firm's figures they would have seem the intention to deduct tax, but this was missed. I believe the FOS should check all calculations and if this requires extra staff or resources then so be it. Something must be done as the current situation is biased in favour of the firms and destroys the FOS's credibility.

Why does the FOS produce guidelines if it allows the Ombudsman to ignore them ?
The Chief Ombudsman tells us that a key purpose of the guidelines is to help firms and consumers settle cases between themselves without coming to the FOS so it goes without saying that following the guidelines will result in a fair and reasonable settlement. Despite this, it appears that the FOS do not think they need to follow their own guidelines and indeed the Chief Ombudsman suggests that they should not follow them.

When I pointed out to him that the FSA rules specifically require Ombudsmen to take into account "regulators rules and guidance" and "good industry practice at the relevant time", he replied that the guidance referred to is "guidance from the FSA and other regulators-not information published by the Ombudsman Service".

Mr Merricks does not tell us which regulators the FSA has in mind which produce better guidelines and advice than his own organisation which was set up by Parliament to be the national expert body on settling financial disputes. If FOS is the national centre of excellence it follows that its published guidelines must be the gold standard of best practice in the field. I cannot see how an ombudsman can properly embrace best practice without considering such advice and in fact the Principal Ombudsman drew attention to tax guidance which had not been followed when he drew attention to the tax error. The FOS website refers to casework managers who (among other things) check to see that the staff are "following established guidelines" so it does appear that FOS guidelines are intended to be followed. On top of this is the reasonable expectation of consumers, that policies published on the FOS web site will be used by FOS staff in considering their case. The whole question of guidelines and their use requires review.

If FOS has produced guidelines to help consumers settle with firms, how are consumers to know of the existence of these ?
Mr Merricks tells us tells us that a key purpose of the guidelines is to help firms and consumers settle cases between themselves without coming to the FOS. But how is the consumer informed of this ? The guidelines do not mention it, and the firm in my case kept quiet about it. I have not seen this advice anywhere and crucially the Ombudsman did not advise me of it, or check that we had attempted settlement in this way. I would have jumped at a settlement based on the guidelines and it would have saved nearly four years of arguments with firm and FOS. Furthermore there is doubt over which publications actually comprise these guidelines. The word guideline does not appear in the title of these documents and they contain no reference to their purpose of facilitating settlements before going to the FOS.

Should it be possible to challenge or review an Ombudsman's decision ?
YES. Whilst I accept that the decision making process must stop somewhere, there will always be cases where one side can show that there is a real chance that a mistake has been made. In my case FOS accept that a mistake was made over tax so surely the same Ombudsman's other decisions in the same case should be reviewed. He also withheld information which if I had known it, would have caused me to reject his decision. Simple honesty and transparency requires that that the Ombudsman's decision be reviewed. The FOS has about 500 adjudicators and 35 Ombudsmen who handled over 100,000 cases last year. It is simply not possible that no-one ever makes a mistake. FOS should review its policy that an Ombudsman's decision cannot be challenged.

Should the FOS be allowed to simply decline to explain difficult or confusing decisions ?
The FOS has a policy:
"We aim to give clear, jargon-free reasons for our decisions - so that any fair-minded person can understand why we reached a particular conclusion"
But in my case the FOS have gone out of their way, time after time, to avoid answering awkward questions, nor will they provide answers to the Independent Assessor. I have asked for an explanation of:

FOS deliberately decline to answer these questions, advising only that the Ombudsman is always right, his decision is final and cannot be challenged.

Taxation
The whole FOS policy on taxation of awards is in chaos. In my case, the firm, Adjudicator, Ombudsman and Service Review Team all misunderstood the situation and disagreed with each other. How on earth was I as a layman to know if the tax deducted was right or wrong. The whole area of tax on compensation requires a complete overhaul with clear policy and guidelines laid out and published after agreement with HMCR.

Initial information to consumers
This is inadequate. Guidelines are not mentioned anywhere in the single leaflet which is provided and these are crucial. FOS provide them to facilitate settlement before coming to the FOS and they give guidance on complex subjects which ordinary people and claimants need help with. Consumers are on their own when dealing with the FOS…it is hard work. The firms use their professional disputes staff and managers.

Hearings
In my case the file is now three inches thick. The amount of time I have spent on this case is amounts to hundreds of hours of work and the same applies to the FOS, though they at least have the advantage of being familiar with the system and its requirements. A single hearing could have clarified and cleared away the majority of major areas of dispute in a few hours. I suggested that we would like a hearing but it was ignored. FOS should revise policy on hearings.

IFA qualifications
I suggest that if the Adjudicator or Ombudsman handling a case does not have qualifications as an Independent Financial Adviser, then the case should be passed to someone who does have these qualifications for comment. I am not sure that the actual suitability of the advice for an 84 year old woman was properly considered in my case. The advice given for an old lady of 84yrs would have caused the adviser to fail a professional IFA exam and was stated to be negligent by my professional adviser, but the Ombudsman thought it was fine. Do Ombudsmen have IFA qualifications to enable them to assess such matters ?

Delays
The delays in dealing with my case were horrendous. I will not list them but the case has been with the FOS for nearly three years, on top of time arguing with the firm beforehand. This is not acceptable. If the service needs extra resources, then they should be provided. If I had been told that FOS guidelines were available for use to settle disputes outside the FOS service, four years would have been saved. Allowing clients to use professional advisers would save months…they would know the system.

FOS staff attitudes
The culture that the Ombudsman is always right and cannot be challenged, does not make it easy to deal with the FOS. There is a certain "we are right because I say so" arrogance, brought about because the FOS decisions are unchallengeable. This does not reflect well on the service when the individuals involved are proved wrong. Despite this, everyone I dealt with was very polite, with one notable exception. In response to my request for explanations, a member of the Service Review Team emailed…

The arrogant attitude speaks for itself and is unbelievable for a public servant, particularly as he was wrong, not me.  His view on the tax situation (despite months of consideration and research to enable him to get it right) was later found to be completely wrong and overruled by the Principal Ombudsman.

How financial firms see the FOS
When I received the firm's very first letter in response to my complaint, they concluded with the words that I should take the letter as their final response and could approach the FOS if I wished. I seemed obvious to me that they wanted the matter to go to the FOS. I have the impression that when a claimant tells the firm that they will take the matter to the FOS, the firm breathes a sigh of relief…"We've made it !"  They know that the FOS will delay further ( thus delaying redress payments), not make a rigorous examination of the case, probably not check any calculations, not criticise the firm, not publicise any mistakes, however disgraceful. They know the award will not exceed £100,000 and that the claimant can't afford to go to court. Many firms would settle for that.

Bias
The whole FOS process is biased towards firms. I do not suggest this is deliberate, but it is what happens in practice. The Adjudicator's initial assessment of my case was based on the firm's evidence, not mine, she showed my letters to the firm but I was not shown theirs, the firm used professional staff and advisers, but consumers are dis-encouraged from doing this, the firm knew guidelines existed and kept quiet about them, the FOS knew the firm had ignored them but did not tell me about this, FOS accepted the firm's calculations without cross-checking them and don't apply their own guidelines, massive delays at the FOS means the firm retained the compensation funds for years invested at inter-bank rates before paying out with interest at bare base rate. Even when a tax error was finally picked up, FOS paid the money itself rather than instruct the firm to repay the money.

Thank you for allowing me to make this submission to the Lord Hunt Review

Yours sincerely,

Paul Grenet

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