Press Release - 30 June 2009

Opening Statement by Joe Meade, Financial Services Ombudsman, to the Oireachtas Joint Committee on Economic Regulatory Affairs

Chairman and members:
I am grateful for the invitation to address this hearing. I will now outline what my role as Financial Services Ombudsman is what has been achieved to date and comment on some current issues.

Background:
As Financial Services Ombudsman I am a statutory officer who came into being on 1 April 2005. I deal independently with complaints from consumers and SMEs about their individual dealings with all regulated Financial Service Providers that have not been resolved after exhausting the internal complaints process. It is a free service. I am not a Regulator or a Consumer advocate but an independent alternative dispute resolution outside of the courts and I am impartial. I can in addition to rectifying matters make compensation awards up to €250,000 in any particular case which is binding on both parties subject only to appeal to the High Court. Our work is geared to ensuring that we act informally and efficiently as is required by legislation, but having regard to due process. The last thing I want is for my office to become like a tribunal or court. While I am neither a consumer champion nor a consumer advocate my decisions have led to major improvements for consumers. I must deal with matters in private but I publish selected unnamed Case Studies generally every six months to enlighten everyone as to what type of cases I deal with and what lessons can be learned. My role therefore cannot but enhance the financial services environment for both consumers and providers.

Our work to date:
We are just four years in existence. Since 1 April 2005, we have received 21,000 complaints and all but 2,900 have been finalised. Last year alone we received 6,000 complaints or an increase of 36% on the previous year. Over 3,850 complaints received so far this year represent a further 42% increase. In general, of the complaints that are closed, some 63% went in favour of the Complainant.

In four years my office has been responsible for at least €50m being refunded to consumers which would not have arisen, I humbly suggest, if my office was not in place. Apart from this €50m the cumulative knock on effect that these findings have played industry wide in getting matters resolved which do not come to me is I suggest a further major benefit of the Office.

The size of the award I make is not what matters; rather that the person who has complained and the financial service provider concerned get a fair and impartial finding from me. Some findings of mine may be informative for you all.

The €35m settlement by Davy Stockbrokers during 2008 to resolve the matter of alleged misselling of perpetual investment bonds to around 130 credit unions was a direct result of my January 2008 finding in the Enfield Credit Union complaint. After the settlement in my favour of the judicial review proceedings taken in 2006 by Irish Nationwide Building Society against a finding of mine in a particular complaint refunds of €1.5m have been made to other customers following a ‘look back’ exercise undertaken at my request. Ulster Bank has made a Supreme Court appeal against a 2006 High Court judgment in my favour where a potential €7.4m payout arises.

Awards of €200,000, €325,000 and €310,000 arose in three individual insurance cases; €250,000 was refunded to a retired person for a geared property fund investment while a €500,000 award was made to a credit union following a €1m investment loss. However I did not uphold an €800,000 death benefit claim due to non disclosure of a prior medical condition or a €1m loss suffered by an individual on a worthless investment bond.

I have also expressed since day one serious concerns regarding inappropriate sales of investment products especially to the elderly and I made significant compensation awards to elderly people. I have also raised issues such as ATM and Credit card issues, conflicts of interest not disclosed, inappropriate investment advice being given, travel insurance, insurance matters in general, income protection, and permanent health insurance policies. Also financial service providers were culpable in selling inappropriate products and in one instance disgracefully bullied a vulnerable person into buying a worthless product.

I will be publishing 27 other case studies on 14 July where very significant awards were made this year and serious issues of concern have arisen.

High Court appeals:
As I said earlier my findings on a complaint are binding subject only to an appeal to the High Court by either party and as a statutory officer I am also subject to judicial review. Indeed an office which can, and does award substantial amounts of compensation, it is inevitable that some such challenges will arise and it would be unrealistic to expect that no appeals will be made. By end May only 0.2% or 33 of my findings - 11 by Financial Service providers and 22 by complainants - have been appealed and out of 18 appeals closed, only 2 judgments were against me.

I cannot stop anyone appealing a finding of mine but naturally I vigorously defend my actions. Indeed, one Financial Service Provider who was not satisfied with a High Court judgment in my favour did not hesitate to appeal to the Supreme Court. I would only decide to appeal a High Court judgement to the Supreme Court, after I obtained and considered legal Counsels’ opinion, and where I ultimately felt it necessary and appropriate that a major issue needed a judgment of the highest court in the land. I did this once following a July 2008 High Court judgment in the Davy judicial review case because the judgment of the High Court had huge implications for the conduct of my investigations in that the Oireachtas has laid down in the legislation that I must deal with complaints in ‘an informal and expeditious manner’. I await the judgment of the Supreme Court following its hearing in May of my appeal.

Current matters:
Some of the matters arising so far this year may be of some interest to you all

• Many of the current year’s complaints deal with investments which have not performed as well as expected or which even turned out to be worthless or where alleged misselling or undue pressure to invest has taken place.
• Inappropriate investments sold to the elderly have not gone away alas.
• Regarding property type investments some Financial Service Providers argued that where property is involved, it did not come under my remit. I disagreed because when a consumer seeks investment advice and part or all of the investment advice was to invest in a property then that is a matter which falls within my remit. Otherwise investment advisors have a free hand to do what they like with regard to advice on property investments and consumers would not be protected.
• I received a number of complaints against accountants who gave investment advice but I could not deal with them. Whilst accountants are authorised as investment intermediaries, they are generally authorised under approved professional bodies status, are not subject to my remit but to their self regulatory accountancy body. I have had to decline investigating three major complaints involving accountancy firms where the amount invested was up to €700,000 in each instance. If they were found to be in breach by their professional body no compensation would be paid in most instances whereas I can award up to €250,000 in compensation as well as directing that the investment loss be made good also. I have requested that where any type of financial service is provided whether by accountants, legal personnel, estate agents, An Post etc any complaints should be subject to my remit so as to have a level and fair playing field.
• The size of the breakage fee in switching from fixed rate to variable mortgages is a major source of complaints since May.
• I have referred, where appropriate, whistle blowing letters I received, either to the financial institution concerned, to the Financial Regulator and indeed to the Director of Corporate Enforcement. I can only deal with complaints which come within my remit but as the matters stated in those letters implied serious regulatory infringements, I felt it appropriate to take the actions which I did.
• I have noticed that for some providers, liquidations and going out of business are beginning to arise and in one case the compensation I awarded is being paid over a period of time in instalments. Indeed I understand where large awards have been made by me, or may arise in future, the professional indemnity insurer of the Provider may not be willing to pay up that award with the result that the consumer may not get its compensation. I am keeping the matter under review because if this was to be the case then a consumer is not protected at all.

Funding and staffing:
A seven member governing Financial Services Ombudsman Council appointed by the Minister for Finance has no role with respect to how I deal with any complaint. The Office is funded by statutory levy payable by all providers which is set by the Council with the consent of the Minister for Finance. Since 2005 our total running costs came to €13.5m including €1.8m in legal costs. I always look for my legal costs when an appeal is not successful or withdrawn though collection of same from lay litigants is not easy. Running costs in 2008 were €5.1m while my staff compliment is just 28. Though work has doubled since 2005 we did not have to increase the levy in 2008 and for 2009 a small levy increase arose. Furthermore the average cost of my office in dealing with a complaint has dropped from €816 in 2006 to €638 in 2008 - a 22% increase in productivity. My accounts are subject to audit by the C&AG.

Future developments:

We have a very busy year ahead I feel but we may be somewhat constrained in our delivery of service because of the public sector embargos on resources. I will be pleased to answer any questions or comments you have.