Our proposition is that regulatory controls should be extended to cover claims management companies. It is important that we consider the provisions of the Bill. I accept that the Government are chewing over the extent to which claims management companies should or should not be brought within the regulatory perimeter, but so many customers are potentially losing out because unwittingly they believe that claims management companies are regulated. They are going through the process of making agreements with claims management companies and then finding that significant fees and charges are taken by them. I therefore believe that the time has come for the Bill properly to ensure that there can be at least some scrutiny and some regulatory control of those organisations by the Financial Conduct Authority in particular. I am not convinced by the Minister’s argument. We need to take these matters in hand. For those reasons, it is important to test the view of the Committee on amendment 191.
I beg to move amendment 166, in schedule 11, page 243, line 2, at end insert—
‘19A In paragraph 8 (guidance), at end insert “The scheme operator must consult publicly on any information, advice or guidance produced prior to publication.”.’.
We now come to the important matter of whether the Financial Ombudsman Service—[Hon. Members: “Ah!”] The hon. Member for West Suffolk has returned to the room. We won by such a close margin in that last Division; it was one of the famous victories! I am grateful to the hon. Gentleman. The tide is finally turning against the Government. But I digress. The Financial Ombudsman Service clearly has a considerable number of decisions to make on a considerable number of cases. Often, there are publications of findings and guidance that flows from those conclusions. There is a balance to be struck between, on one hand, swift processing of those arrangements, openness and transparency and, on the other hand, a proper sense of consultation with industry and consumer groups when it comes to the downstream consequences of Financial Ombudsman Service decisions.
This is a probing amendment. The aim is to get a sense of where the Government feel that the balance should be struck, because clearly there are arguments on both sides of the divide. On the one hand, the Financial Ombudsman Service publishes quite a lot of documentation to inform businesses and consumers about technical issues. Indeed, Lord Hunt, in his 2008 review, suggested comprehensive information provision and technical notes, to ensure that final decisions of the ombudsman reflect what happened in each case.
On the other hand, some trade organisations, particularly the Association of British Insurers, have specific concerns and believe that the Financial Ombudsman Service has published guidance on its approach to complaints on a wider range of topics—pet insurance, mortgage arrears, household repairs and so forth—and that it does not usually consult key stakeholders, such as industry or consumer groups, before issuing such guidance.
The organisations in question believe that it is regrettable that there is no consultation on the guidance, not least because firms are required to take ombudsman decisions into account. They are concerned that notes stand, effectively, as policy guidance, so a fuller consultative process with stakeholders would improve FOS guidance and ensure its compatibility with FCA rules and other appropriate legislation.
I accept that there is an argument on both sides of the issue, but I wanted a sense of whether the Minister thinks the right balance has been achieved between public disclosure and consultation with the industry. Can he also offer some reassurances that arrangements to gather the views of industry and consumer groups will be sufficient, and will not have any unintended detrimental impact, given the volumes involved? I am sure that he gets the point of amendment 166. It was really just to test that view.
I understand the point that the hon. Member for Nottingham East is making about guidance and I am pleased that he has made it clear that the amendment is a probing one. It is rather more widely drawn than is perhaps appropriate even for those purposes.
There are important areas in which the FOS needs to consult in advance. It is clear that it needs to consult on scheme rules before making them, and we retain the provision in the Financial Services and Markets Act 2000 for that. We have also included a requirement for the FOS to consult on its annual plan. I hope that that demonstrates that we seek to strike a good balance between ensuring that there are obligations to consult on the right material without burdensome requirements that would benefit no one.
I am not clear about the benefit of the FOS consulting in advance on publications such as technical notes and guidance, where those are simply explanations of how it will handle cases, based on decisions that the ombudsman has already taken. I have looked at one of those technical notes to understand what is in them; it is about guaranteed asset protection insurance, and is five pages long and very technical. It covers some of the information that an insurer might want, explaining what the compensation should be, and covering issues that should be considered in determining whether a policy has been mis-sold. They are fairly dry things.
The FOS is clear that it is willing to listen if industry or consumer groups want to raise issues about the technical notes, and no one in industry or in consumer groups should feel that they cannot talk to the service about them. It welcomes feedback on the documents and is willing to review the content and, if necessary, its approach to dealing with cases. If there had been a huge torrent of comment, the case for putting the notes out to consultation would be clearer, but the FOS gets little feedback on them, which suggests that there is not really an appetite for a proper consultation in the industry or among consumer groups.
I want to touch on a slightly broader point on transparency. I talked about the requirement to publish the annual report, but the Bill also provides for a new duty on the FOS to publish reports of determinations as well. That will be a step change in transparency in the relationship between FOS and its stakeholders around increasing the openness of the decision-making process. The publication of determinations will ensure that consumers and firms have a full and balanced picture of the decisions that the FOS reaches, which supports greater scrutiny and accountability. We are, I think, seeing steps to strengthen the accountability of the FOS to the industry. It is not necessary formally to consult on technical notes and guidance, but there is a facility for industry or consumer groups to provide feedback for the FOS if they wish to do so.
That is helpful. It is useful that those in the sector who have to grapple with some of these technical guidance notes understand the Minister’s views on the extent to which there should be consultation ahead of publication. It is also useful to know that there are feedback mechanisms for industry bodies or others that want to make representations to the ombudsman service. I am content that the Minister has had an opportunity to clarify that particular matter. I, therefore, beg leave to withdraw my amendment.
The schedule focuses on the relationship between the Financial Ombudsman Service and the new regulatory bodies, and the consequential amendments to FSMA. My first question for the Minister is about the rationale behind his design. If the FCA is to be a consumer champion body that nips problems in the bud, as the hon. Member for Wyre Forest said this morning, we will be setting up a regulatory system that prevents a lot of downstream consequences. Presumably, if the FCA and the regulators do their job well, the FOS will eventually become less necessary. It will not be dealing with its current volume of work. That is the logical deduction. I assume the Minister agrees with step one.
If the Minister thinks the FOS will become less necessary, is it then possible to judge the success of the regulatory arrangements by the future volumes of work of the FOS? In other words, if the FOS becomes less and less busy, it will be a good thing, a sign of success. It will be a signal that the new regulatory architecture was properly preventing problems from occurring. If that is the case, what does the Minister anticipate the workload and expenditure of the FOS to be over the medium to long term? Has he any expectations that that downward trajectory will be particularly steep? What will be the change that flows from the new regulatory arrangements that are in place? Will the Minister give us a sense of the scale of what we might expect in future?
That is true, but in a sense they are two sides of the same coin. As well as less compensation being required, we would also expect to see fewer complaints. That is my assumption.
My second point concerns the memorandums of understanding between the various bodies—in this case the FCA and the Financial Ombudsman Service. As they are not outlined in the Bill and are only in draft form, it is difficult properly to scrutinise these rather amorphous documents. Can the Minister assure us that the work of the FOS will absolutely complement and add value to the work of the FCA, and that there will not be duplication or tension between them? There are some areas where tension or conflict might occur. Those are my concerns about schedule 11 but, by and large, we can see the need for it.
The hon. Gentleman is tempting me to gaze into a crystal ball and to try to plot the future for the Financial Ombudsman Service. We must recognise that it deals with a wide variety of individual claims, some of which are triggered by products. This morning, we discussed the fact that last year the FOS received 105,000 complaints about payment protection insurance. Clearly, a more proactive regulator should be in a position to tackle something such as PPI earlier, and therefore reduce the volume of complaints about a particular product. However, we are not in a zero failure regime, and there will still be product failures, and disagreements between customers and product providers that will not be resolved by discussion between them. The work load will remain.
One of the best ways of reducing the level of the ombudsman’s work would be for financial service providers to take complaints more seriously. Complainants go to the FOS when they have exhausted the provider’s complaints procedure. There has been a suspicion that one or two providers have outsourced their complaints process to the FOS. Its publication of various statistics on complaints has been helpful, and throws a spotlight on product providers and the volume of complaints. The more that product providers handle complaints internally and deal with them satisfactorily, the less demand there will be for referral to the FOS. A number of different factors will drive the volume of complaints to the FOS, but I am clear about its role.
On the hon. Gentleman’s second point, the FOS exists as an alternative dispute resolution body; it is not a quasi-regulator. Yes, it must co-operate with the FCA, but it is there to handle individual disputes. A broader issue that we are tackling—we will come to this in clause 40—is to try to deal more effectively when complaints about a particular product of a particular firm becomes a series of complaints about the same product to one or more firms: in other words, mass detriment. Clause 40 deals with ways of improving that process so that the FOS remains focused on its role of dealing with individual complaints.
To strengthen the relationship between the FOS and the FCA, proposed new section 232A imposes a duty on the FOS
“to provide information to FCA” that is relevant to
“one or more of the FCA’s operational objectives”,
and imposes a reciprocal duty on the FCA to take that information into account.
The Bill tightens up the relationship between the FCA and the FOS, and the memorandum of understanding is an important part of that relationship. I am very clear that the FOS will continue to be a place to resolve individual complaints, and not a quasi-regulator. I hope those answers resolve the hon. Gentleman’s concerns.