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Shortened version of evidence submitted to the
Lord Hunt Review of the Financial Ombudsman Service

From Mr Paul Grenet

  • 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. 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.

  • FOS discourages claimant from using professional help (" We prefer to hear from you in your own words ") and expenses will not be paid, so most claimants rely on their own wits. The FOS recommends its website as a source of help and most claimants would expect to be able to rely on the information found here, including published guidelines, but the Chief Ombudsman has told me that Ombudsmen are not required to follow their own guidance policies. FOS generally does not check compensation calculations.

  • 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 taken from the firm's evidence, not mine.  She showed my letters and evidence to the Bank, but I was not shown theirs.  She mis-understood the amount intended to be invested by an staggering £44,000.  She did not pick up crucial dates. 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 the inheritance and never traded any shares. A final amount invested by the Bank of £27,000 more than originally agreed but this did not concern the Adjudicator. Nor was she concerned 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 she had insufficient funds in cash to pay for her initial care home 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 the tax had been deducted. I do not think the Adjudicator had adequate skill and experience to handle a case of this complexity.

  • I asked for an Ombudsman to make an independent review of the case. I also took independent professional advice. 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 firm's offer would actually compensate my Aunt for her losses. 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.

  • 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. 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 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. This ended up with the FOS Service Review Team (the FOS complaints department). They found nothing wrong, but said they would review the tax issue if I could produce my Aunt's tax records going back 8 years. After examining them, the Ombudsman changed his mind. He now thought tax should 10%. He did not explain why both he and the Adjudicator had recommended the original offer (taxed at 20%) without considering the tax documents.

  • Eventually, the Principal Ombudsman overruled everything and ruled that the award was not taxable at all. Yet for months FOS had defended the Ombudsman's original decision, arguing in favour of a position that was incorrect and contravened FOS documented guidelines. 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 a further £4800 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.

  • 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 was unconcerned that the FOS declined to answer his query..

  • The Principal Ombudsman decided he would in fact order a change in the award. The tax the Ombudsman had 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 actually 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 needed to find someone guilty.

  • 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, he 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.

  • It is FOS policy that firms which submit offers of compensation are treated differently from those which do not submit an offer. Few ordinary people will be able to understand this. I would like to know the reasoning behind this policy. 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. This is what happened in my Aunt's case.

  • 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.

  • 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.   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 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 FOS did not advise me of the existence of these and did not check that the firm had applied them.

  • YES. 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.

  • NO. 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.

  • 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.

  • This is inadequate. Guidelines are not mentioned anywhere in the single leaflet which is provided. The firms use their professional disputes staff and managers.

  • In my case the file is now three inches thick. 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.

  • 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 ?

  • The delays in dealing with my case were horrendous. I will not list them but the case was with the FOS for nearly two years before I finally gave up.

  • The culture that the Ombudsman is always right and cannot be challenged, does not make it easy to deal with the FOS. For instance:
    "Having read through (your emails) I have nothing at all to add to what I have previously said, and in particular I am at a complete loss to know what further elucidation or explanation I could possibly hope to proffer. I am not prepared to devote additional time and effort towards further elucidation which I am far from confident will meet with either your understanding or acceptance
    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 andoverruled by the Principal Ombudsman.

  • 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.

  • 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 best practice 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

The above is a shortened version of the actual evidence. To read the full version click here.

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