Six City refs are better than one

Plans for a Super Ombudsman risk losing some of the advantages of today's system, says Laurence Shurman

SUPPOSE you believe your insurers have wrongly rejected a claim, or your bank has miscalculated your mortgage repayments. You could issue court proceedings but would probably be deterred by the risks and expense involved. The court system generally favours large companies with resources and expertise to conduct adversarial litigation against customers who lack them.

It was to address this disparity that a number of financial services' ombudsman schemes were set up. The ombudsman is independent and able to proceed inquisitorially. Crucially, he himself conducts an investigation to establish facts, ascertain arguments and ensure each side has the chance to answer the other. This makes it unnecessary for the parties to be represented. The service is free and the complainant is not at risk of having to pay his own legal costs and those of the company should he lose, as in court.

These, however, are not the only reasons for the success of the schemes. Importantly, the ombudsmen deal with all but a few cases on paper and without a hearing. This enables them to function relatively speedily and inexpensively, and in an informal, user-friendly way.

There are some defects. Complainants may be confused by finding six separate schemes covering insurance, banking, building societies, investments and pensions. Also, in this age of "bancassurance", a dispute may be referrable to more than one ombudsman. However, there is cross-referral that usually ensures that a complaint reaches the correct scheme.

It is confusing, too, that there are considerable differences in the terms of reference, powers and procedures of each ombudsman.

More seriously, in some sectors a significant number of companies do not belong to a scheme, thereby denying customers the possibility of redress through an ombudsman.

The new Financial Services Authority (FSA) is assuming control of financial regulation in the UK. As part of its responsibilities, and with the authority of the Government, it has announced that all financial services ombudsmen, apart from pensions, are to be merged in a single compulsory scheme.

The unified scheme should make good the defects listed above. Problems of "signposting" overlapping jurisdictions should no longer occur, and there should be a single set of rules applicable to all users. Also, all individual retail customers would be covered because membership would be compulsory for all companies requiring FSA authorisation.

It remains to be seen whether the powers of the new "super ombudsman" will match the more extensive or the more restricted ones of the present ombudsmen. For example, will the new ombudsman be able to award up to pounds 10,000 for distress and "inconvenience", as in some existing schemes, or will he be limited to a sum similar to the Personal Investment Authority ombudsman's limit of pounds 750? The FSA consultation paper in February suggested pounds 1,000.

Far more important is the question of the new ombudsman's procedures. Here it is worth considering the European Convention on Human Rights, which is being incorporated into UK law. The effect of our Human Rights Bill would be to make the new compulsory ombudsman scheme, with a power to impose binding awards, a "public authority", which would be bound by Article 6 of the Convention. Its decisions would be regarded as determinations of "civil rights", entitling the parties to a public hearing and representation.

However, the right to a hearing would destroy many of the advantages of the present schemes. Rights to be represented and to cross-examine at a public hearing would make the process much slower, more formal and less user-friendly. In practice, the new scheme would have to replicate many features of the court system.

There are alternatives, and even this late they should be seriously considered. Better "signposting" and harmonisation of powers and rules could be achieved without merging them. In banking, for example, in which over 99 per cent of the banked population is covered by the existing voluntary scheme, it would be better to leave things as they are or possibly to merge the scheme with the very similar building society one.

If, despite everything, there is to be a single unified scheme a way must be found to avoid hearings. What the public wants is surely easy access to an informal, quick and fair means of dispute resolution. It would be a sad irony if a Government that seeks to refocus legal aid should, as an unintended consequence of incorporating the Convention, make justice less available to many who now benefit from ombudsman schemes.

The writer is a former Banking Ombudsman and the former chairman of the British and Irish Ombudsman Association.