Edward Scott, Partner at Dickinson Gleeson, examines how busy the Channel Islands Financial Ombudsman has been since he started work, and whether that represents value for money
The Channel Islands Financial Services Ombudsman (CIFO) opened for business on 16 November 2015. His remit is to adjudicate complaints from individual customers in relation to financial services provided in Jersey and Guernsey.
So just how many people have taken advantage of his services and what have the outcome of cases been?
According to figures on the CIFO’s workload, the Ombudsman hasn’t been inundated with complaints. While some might argue this shows that people are reluctant to raise a complaint, I believe this indicates that, for financial services within the CIFO’s remit at least, Jersey and Guernsey provide financial services to a high standard or at least that complaints are appropriately resolved by providers. So is the scheme a hammer to crack a nut?
CIFO’s remit
The CIFO service gives individuals, small businesses, trusts, foundations and charities – so, broadly, retail clients – access to a free-to-complainant dispute resolution service. The CIFO can make awards of up to £150,000 to return complainants to the position they would have been in had the problem not occurred, and also to compensate for financial loss and material distress and inconvenience. Once the complainant has accepted the Ombudsman’s determination, it binds both parties.
Complaints must be about acts in the course of certain types of financial services business provided in or from within Jersey and Guernsey. At the moment, most trust company business and most funds business are outside the Ombudsman’s remit.
Before the scheme’s inception, the Economic Development Department at the States of Jersey had estimated that the set-up costs would be in the region of £183,000 and the first year's operating costs around £583,000. The CIFO is funded by the Channel Islands’ finance industries, with businesses paying levies, as well as case fees for each complaint made against them.
Crunching the numbers
The CIFO has released statistics on the complaints referred to him up to 30 June 2016. He has received 340 complaints since opening. This figure is surprisingly low given that complaints may be made about an event dating back to 1 January 2010 (if the financial services were provided in Jersey) or 2 July 2013 (for services provided in Guernsey).
Split by sector, most complaints related to banking services, then insurance, followed by investments/funds. There are no figures on the split of complaints between Jersey and Guernsey providers.
The numbers reveal that the vast majority of the complaints closed (73 per cent) were outside of the CIFO’s mandate – because they were about events before the start dates or because they related to financial services outside the CIFO’s scope, for instance. However, for matters within the CIFO’s remit, the figures show he hasn’t had cause to right many wrongs.
Of the 40 cases mediated or adjudicated by the CIFO, 27 were mediated or determined in favour of the complainant, with 13 in favour of the financial services provider. However, only 15 complainants that were successful in mediation or adjudication received compensation that was more than the settlement already offered by the provider. Twelve such complainants received the same amount as the provider had offered.
So, in the first half of 2016, only 15 complainants have been put in a better position by the Ombudsman.
Where’s the value?
There’s an argument that the existence of the CIFO encourages financial services providers to give a good service and to resolve complaints appropriately. But most of the complaints received so far will relate to problems that occurred before the CIFO was established.
It also seems likely there will be fewer complaints over time because financial services providers, and banks in particular, have become increasingly focused on treating customers fairly.
It’s early days, but we can make some guesses about the cost to the Channel Islands' financial services industry of each ‘successful’ complaint, where the complainant receives a higher amount than that offered by the provider. Assuming there are 30 successful complainants every year, and using the Economic Development Department’s estimated budget, the cost would be around £19,400 per complaint.
But how does this compare to the compensation received by each successful complainant? No figures have been published on how much each successful complainant received over the provider’s offer, but the amount is much more likely to be hundreds of pounds rather than thousands.
Cost issue
In light of this, the costs of the scheme may be disproportionate. As well as the direct cost of funding the scheme, there are costs to financial services providers in managing every complaint referred to the CIFO.
It has been argued that the existence of a case fee can encourage spurious complaints to the Ombudsman in the hope of a payment in settlement. These factors contribute to the costs of providing financial services in Jersey and Guernsey, which are already seen as high.
The early signs from the CIFO are that retail clients of Jersey’s and Guernsey’s financial services industry are generally happy with the service they receive. Or where customers have a complaint, it is generally resolved well by the financial services provider.
If over time it becomes obvious there is no great need for an Ombudsman service on the current scale, perhaps the size and costs of the scheme could be cut. This would be preferable to the CIFO’s remit being extended to financial services that are currently out of scope (to cover trusts and non-retail funds, for instance) in order to justify the scheme’s existence and size.