I thank the Chairman and members of the committee for inviting us to appear before it. We welcome the opportunity to give our views on these important matters. I also thank the committee for looking at the Office of the Ombudsman as a whole. I am sure, as the Chairman has found by looking at the respective ombudsman schemes, that we are different bodies, each with a different remit. Some of us deal with stakeholders in the private sector, others in the public sector. Some can only make recommendations but others, such as ourselves, make decisions that are legally binding. Despite the fact that there are many differences, we have things in common, in particular as the committee looks at the respective roles of each of the ombudsmen, I would commend them very much to look at the guide to principles of good governance that have been put forward by the Ombudsman Association. The Ombudsman Association is an association of the ombudsmen of the UK and Ireland. All the various Irish ombudsmen are full participants and they look at very different ombudsman schemes - from the financial services ombudsman, the statutory ombudsman to the various private sector ombudsmen. They deem there are certain principles such as independence and effectiveness that really are principles that should apply across the board. It is very important for the committee to focus on those types of issues as they look across the ombudsman spectrum.
I am here primarily to talk to the committee about the work of the Financial Services Ombudsman. We were set up to be an alternative to the courts. We are independent and impartial in resolving disputes. Our particular jurisdiction is that we handle complaints by eligible consumers against regulated financial service providers. This includes banks, building societies, insurance companies, intermediaries and a host of other providers, which are all regulated providers.
We were set up in 2005 on a statutory basis as the Financial Services Ombudsman. Prior to the establishment of the financial services ombudsman, there were voluntary schemes, set up by industry, such as a banking ombudsman, a credit institutions ombudsman and an insurance ombudsman. Those roles were amalgamated and we were put on a statutory basis.
We are a statutory officeholder who deals independently with complaints from consumers about their individual dealings with all financial service providers that have not been resolved by the providers. It is a requirement that before someone should come to us that he or she engages with the provider first. The provider is required to inform the eligible consumer of our existence. If the consumer is not satisfied with the resolution the financial service provider has given, he or she can then complain to us.
The legislation that established us is the Central Bank and Financial Services Authority of Ireland Act 2004. It provides that we should deal with complaints efficiently, effectively and fairly, and that complaints should be dealt with in an informal and expeditious manner. We are funded by a levy on the industry, not by the Exchequer, and consumers who make a complaint to us pay no fee and can do so free of charge.
We operate in a larger institutional framework. We adjudicate complaints based on principles made by others. The principal basis on which we adjudicate cases is the consumer protection code and other regulations that are promulgated by the Central Bank. We are also guided by legislation and general legal principles. Our decisions are only binding on the parties in front of us. We do not establish legal precedents. That is not our job. We are not a court. We do not investigate financial service providers. We do not investigate complainants. If we come across an issue that we think is of systemic effect, we notify the Central Bank with which we have a very open and productive relationship. It is up to the Central Bank as the regulator to make an investigation, if it wishes. It has administrative powers. It can issue fines and penalties. We do not issue fines. We do not award penalties. We adjudicate individual complaints and we award compensation.
The Financial Services Ombudsman is appointed by the Financial Services Ombudsman Council. He is not a member of the council. The council operates in a supervisory and advisory capacity. It is a separate body. It has no role with regard to how the ombudsman and the bureau deal with a particular complaint. The ombudsman and the bureau are completely independent, not only of the stakeholders but also of the council. We have been issuing a report about our complaints twice a year, our biannual review. The latest one was issued for the second half of last year. We have given the committee a copy of that review. It tells a very important story about what has been happening in terms of complaints to our office in the past year. By way of background, it is important to know that if one considers the financial crisis and the record of complaints before the ombudsman, between 2006 and 2009 the volume of complaints doubled and trebled. That put a significant strain on the work of the office. From 2009 to 2013 the complaints levelled off, broadly speaking. Since the second half of last year, however, there has been a very significant reduction in the numbers of complaints of approximately 50%.
There are several reasons for this. The complaints were driven by the financial crisis, by people often in very severe financial distress, for example, people who had lost money on their investments. Complaints about investments in the past 18 months are down by approximately 90%. We operate under a six-year rule of the statute of limitations. In effect, the people who lost their money when the markets collapsed in 2008 have already made their complaints to us. People who made their investments in 2009 or 2010 had, by and large, a very different outcome from those who made their investments in a previous period. There are reductions in complaints across the board. There are two reasons for that, the first of which is that we have changed our procedures to insist that complainants fully engage with providers before we adjudicate a complaint. We have found that many people come to us prematurely before they have engaged with the financial provider and we tell them we are here for them if they are unhappy with the resolution the provider gives, but first they must deal with the provider. They go to the provider and many do not come back to us.
Second, the legislation was changed in the second half of last year to give us the ability to issue reports on the complaint performance of individual financial service providers, and we did this in our first report which we published earlier this year. It set out a fairly simple league table of the numbers of complaints upheld against financial service providers where during the relevant period, three or more complaints were upheld. We did this according to the statutory instrument which sets out the way this must be done.
It has been our experience that this single report has had more influence on the behaviour of financial service providers than all the other decisions we had made in the first almost ten years of the office. There is a renewed sense of engagement by providers. They are trying to settle more cases and are engaging with their customers at all stages in the process, from before the complaint is made to us to very advanced stages of investigation. We, by and large, consider this to be a good thing because there can only be a settlement if both parties agree. If someone is not happy with an offer made, that person is fully entitled to adjudicate to continue with the investigation and have us adjudicate the case. We are very pleased to do that.
The committee has asked us several very specific questions. I have dealt with some about the role and function of an ombudsman and the rights of citizens. For us, it is very clear: citizens can make complaints to us if they are eligible consumers and they can do that free of charge. Another question we were asked was whether the office of any ombudsman should be statutorily based and why. I have to qualify my answer by saying that in terms of financial services we believe that it should be statutorily based because it means our decisions are legally binding. Given the history of financial services and their importance, the public needs a manner of clear, effective redress and that can only be given if the body has binding legal powers.
If we turn to the broader network of ombudsmen, there are many voluntary schemes that are not based on statute that effectively provide a very good service. They are forms of complaint handling. Often their jurisdictional limit is quite small. For some of the ombudsmen schemes dealing with telecommunications or other types of commercial services, the remit of the ombudsman may be only €1,000 per complaint - relatively small - whereas ours is €250,000. Those schemes provide a valuable service. They can be quite effective provided there is buy-in from the industry, and putting them on a statutory basis may not gain much more. There are some areas, such as financial services, which because of their importance in people’s lives and because it is one area where there is a great disparity in knowledge between the average consumer and the financial institution should be statutorily based. We have learnt from dealing with people that many of them do not understand the nature of the products they have bought. They do not understand their rights. That cries out for the need for effective redress.
Another question is whether each ombudsman should be independently funded directly from the Central Fund. We are not funded by the Exchequer. We are funded by a levy on the industry. That is entirely appropriate. We inherited a voluntary scheme which was already funded by the industry.
It is more appropriate for the industry to pay for it than the Exchequer. Having said that, sometimes when we get letters from people who have made complaints and who are unhappy, they ask how they can expect anything else because we are funded by the industry. It is very important that when a body is funded by a levy on the industry it has proper governance in place in order that it is independent. In that sense, we are independent. The levy is not imposed by the ombudsman or the bureau but by the council, which does it independently of us. The council takes no part in deciding individual cases. The independence of an ombudsman, if it is fully enshrined, is compatible with funding by the industry.
An important question is whether all public bodies should respect and implement in full recommendations made by the ombudsman arising from formal investigations by that ombudsman. As I said previously, one can broadly separate the world of ombudsmen into two groups, namely, the public and the private ombudsmen. The public ombudsmen, such as the Garda Síochána Ombudsman Commission or the statutory Ombudsman, Mr. Peter Tyndall, deal with complaints against public bodies. We deal with complaints against private bodies, which makes us significantly different. Public bodies should have a buy-in to the ombudsman process. If public bodies are able to ignore recommendations of the Ombudsman without giving any reason whatsoever, that obviously undermines its authority. That is not to say that the Ombudsman is infallible but, clearly, in respect of the public ombudsmen, there must be some thought given to the integrity of their decisions. We, however, are in a very different space. We do not deal with public bodies but with private ones and our decisions are legally binding. To that extent, our decisions can be fully and completely implemented by the parties concerned. If, for example, a financial service provider does not implement one of our decisions, there are provisions in place which allow us to take the provider to court. By and large, the only circumstances in which our decisions and findings are not implemented by the financial service provider are when that provider has gone out of business or into liquidation. At that point, there is nothing that anyone can do in terms of enforcement.
On the question of the threshold for a government which wishes to reject a report from an ombudsman, this is something that the public ombudsmen would be better able to comment on rather than us. The impartiality of the ombudsman is both a matter of fact and perception and the prestige of access to independent redress by citizens is also a matter of perception. In that context, we have been asked for our views on how this should be strengthened. Independence is at the absolute heart of what we must be. If we are not independent, in both fact and perception, we cannot do our job. Again, that is enshrined in legislation, as follows:
The Financial Services Ombudsman is entitled to perform the functions imposed, and exercise the powers conferred, by this Act free from interference by any other person and, when dealing with a particular complaint, is required to act in an informal manner and according to equity, good conscience and the substantial merits of the complaint without regard to technicality or legal form.
We believe that independence is extremely important. We have to be able to investigate complaints free from all interference. There are also very important governance aspects to the tenure of the ombudsman. The Ombudsman Association argues that the recommended term of office should be a minimum of five years. Everyone understands the importance of the independence of the Judiciary and we all accept that it must be free from any type of influence. That is why judges are given, in many cases, lifetime tenure. We are not asking for that but we believe that a minimum tenure of five years is appropriate, given the fact that we have a quasi-judicial function at the very least. We also believe that the salary of the officeholder should be tied to a Civil Service grade and not simply a single salary point.
Effectiveness is also very important. We must continue to have the necessary powers and ability to provide an aggrieved complainant with an adequate remedy. As one looks across the spectrum of other ombudsmen, this is a question that must be focused on. What can the other ombudsmen do to compensate an aggrieved party? If they cannot do that, there is no incentive for anyone to make a complaint to them. If an ombudsman is not getting complaints, then he or she is not really an ombudsman. My office has a very wide jurisdiction to give a complainant effective relief. If someone has made an investment and makes a case that he or she was mis-sold that investment, I have the legal powers to direct that the investment be returned to the financial service provider and the individual can get all of his or her money back, irrespective of jurisdictional limit. That is a very clear-cut example of how we can give an individual an adequate remedy. It is very important to look at this issue through that lens in the context of other ombudsmen.
The final question is whether all bodies and entities providing goods and services, whether delivered by the private or public sector, should be subject to the remit of the ombudsman. The statutory Ombudsman has spoken about this and it is a question that is more relevant for him. That said, we would agree with his position. If services were provided by the public sector previously - and under the public regime, a complaint could be made to the Ombudsman - the privatisation of those services provides no reason to deny aggrieved consumers the ability to access the Ombudsman. It should not make any difference whether the service provider is in public or private ownership in terms of the public having access to an ombudsman scheme.
I am very happy to answer any further questions the committee may have.
