Treasury Committee 

Oral evidence: The work of the Financial Ombudsman Service, HC 223

Tuesday 27 February 2024

Ordered by the House of Commons to be published on 27 February 2024.

Watch the meeting

Members present: Harriett Baldwin (Chair); Mr John Baron; Dr Thérèse Coffey; Dame Angela Eagle; Stephen Hammond; Drew Hendry; Keir Mather; Dame Siobhan McDonagh.

Questions 220 - 318

Witness

I: Abby Thomas, Chief Executive & Chief Ombudsman, Financial Ombudsman Service.

Examination of witness

Witness: Abby Thomas.

Chair: Welcome to this Treasury Committee evidence session on the work of the Financial Ombudsman Service. Abby, could you introduce yourself, please?

Abby Thomas: Hello. I am Abby Thomas, and I am the CEO and chief ombudsman at the Financial Ombudsman Service.

Q220       Chair: You have been in post now well over a year. What would you say you have chalked up in terms of your major successes and achievements since you started?

Abby Thomas: Yes, I have been in post now just under 18 months. During that time, we have worked hard together as a team. Our key priority has been to at least maintain the quality of the service that we provide to our customers, be they complainants or businesses, and to improve the time it takes us to resolve cases. We have been successful in those two objectives.

On the quality front, we measure quality across a number of metrics, but the blended score has improved over that time period to 94% from 92%. On the timeliness front, we have made a significant improvement. At the end of the prior financial year, we were closing 30% of our cases in three months; that has now gone up to 57%. There is still more to do, but it has significantly improved.

Similarly, at the end of last year, we were closing 55% of our cases within six months. That is now at 82% and rising. I am really pleased that we have been able to bring that certainty to our customers more quickly without compromising on the quality of the service that we provide.

Q221       Chair: Are there any other achievements you want to highlight?

Abby Thomas: Those are probably the outcomes our customers value the most. In terms of how we have achieved it, we have built a sustainable foundation for success in the future, really focusing on our digital transformation to improve both our self-service capabilities for customers and the tools that we provide our caseworkers, but also on our people transformation, setting up specialist units dedicated to specific products, so that every customer who comes to us knows that the person they are speaking to understands their case and understands the context that that case has arisen in. That has been really helpful for our customers, but also for our people.

Q222       Chair: What are the things that you hope to improve further this year?

Abby Thomas: We have some areas for focus. Again, we want to at least maintain that quality, but also to continue to improve on timeliness. We have set some ambitious service standards, and we have published those as well, so that everyone can see the progress that we are making and that we still intend to make. There will be a further focus on timeliness.

In addition, there is probably more we can do from a digital perspective. Last year, we achieved a lot in the digital space, but there is still more to do, particularly from a self-service perspective, giving customers control of their own cases.

There are also new casework types coming to the fore that require more attention. I know that this Committee is very aware of the work on authorised push payment fraud and the mandatory reimbursement regime. We are making sure that we are ready to work in that manner.

Chair: We will be asking some more detailed questions on that.

Abby Thomas: Motor finance would probably be the other casework highlight.

Q223       Chair: We will also be asking you some more detailed questions on that. There is still a backlog, isn’t there? You have not mentioned the backlog once. You were aiming to get rid of it, and there is still a backlog.

Abby Thomas: It is much reduced. We now look simply at how many cases we have that are over 12 months old. By that measure, we reduced backlog. Last time I was here, it was at 13,000; it is now just over 10,000. There are 10,500 cases over 12 months old, some of them held behind litigation, so we cannot progress those cases just yet, and some relating to motor finance, where we have worked to formulate our position on those cases and recently issued some final decisions. There are some more that I agree we very much want to address. Our target for next year is to reduce that number significantly.

Q224       Chair: You wanted to get rid of the over-18-month cases completely. You wanted to completely eliminate that backlog, but you still seem to have, according to the data I have here, 7,500 cases over 18 months.

Abby Thomas: I believe that was from the end of 2022-23. I suspect that number has changed since.

Q225       Chair: Do you know what it is now?

Abby Thomas: I can confirm that to you in writing, but the reason I do not have it to hand is that we are really focused on any case that is over 12 months old. That, to us, is the cut-off point that goes into the area where it is just not helpful to a customer. We have really focused internally on 12 months being our cut-off point. Of course, I can provide you with that information separately.

Q226       Chair: It is not zero, though, is it? You have not achieved that.

Abby Thomas: It will not be zero, no.

Chair: You would be telling us if you had achieved that.

Abby Thomas: Yes. It will not be zero at this moment. Again, sometimes there are objective reasons for that, like litigation.

Q227       Chair: One of the things we often hear feedback about the Financial Ombudsman Service on is about inconsistency in decisions. You can have two identical cases and they can be treated completely differently by your casework team. Do you recognise that criticism?

Abby Thomas: No, not really. I have heard it—I should say that—but I have not been provided with details of cases where, superficially, on the facts provided in the decision, you can see a clear difference of approach from one ombudsman to the next. That is because we have worked hard in our processes to make sure that we are giving that consistency and, therefore, predictability to businesses in terms of what they should seek to achieve on behalf of their customers.

We have a very robust quality assurance process. That helps us with our consistency. In every case, with every view—the first stage of our process—that gets issued, one in every 15 gets quality-assessed. When that moves to the ombudsman stage, one in every 25 would be subject to a further assessment. That helps us with quality and consistency. So does the knowledge management that we use to help people doing their cases, and so does our induction training and ongoing in-life training as well. They are all predicated on the need to ensure that, wherever possible, where the facts are similar, we are giving a similar answer.

I will, however, point out that every customer is different. Particularly on the complainant customer side, we put a lot of thought, as is appropriate, into their personal circumstances. There is potentially a level of vulnerability; that sometimes makes a difference to the decisions that we make. For the purposes of the privacy of the individual, we would not necessarily spell that out in the decision as we publish it on our website, but we are bound to consider those individual factors in our decisions. That is very important.

Q228       Chair: The other piece of feedback we get is that the ombudsman service is not consistent with what other regulators are requiring. You will be aware that, for example, with British Steel defined-benefit cases, the FCA uses one way of valuing those liabilities, but case outcomes at the Financial Ombudsman Service have used a critical yield methodology—a different methodology altogether—to evaluate. It is very difficult for businesses to get a consistent view between regulators.

Abby Thomas: I suspect British Steel is something of a special case. If I may set out very briefly why, in the British Steel scenario, initially when complainants approached us, we looked at it, as we would for any other case, on a case-by-case basis and used our standard approach to pension redress calculation.

When the FCA started to investigate the situation with the British Steel pension holders, it put in place a scheme, one facet of which was a defined method for calculating redress that was communicated to industry. We worked with the FCA to help define that redress approach, and our role now is to check that industry, or the respondent businesses on the other side of that dispute, are applying that methodology in a consistent manner.

I feel we have worked hand in hand with the FCA at the point that the scheme was announced and subsequent to that, which is probably over a year now. We have tried to work with the FCA not only on the cases and on the redress scheme, but also in our engagement. We have gone out with the FCA to talk to those communities that are affected, so that at least they know what to expect, and to the businesses too.

We are very aligned with the FCA, but I appreciate that, again, for British Steel, there has been that change of approach from a more complaints-led approach to a more scheme-led approach, which probably has slightly changed the methodology in use as a result.

Q229       Chair: It is in that context that people are looking at the new consumer duty that came into force last July and wondering on what basis the financial ombudsman will look at cases where the consumer duty has been alleged to have been breached.

Abby Thomas: The consumer duty was a big milestone for the financial services industry. Again, we spent a lot of time engaging directly with respondent businesses, also through trade associations like UK Finance, to give as much awareness as possible, both of the duty and of our likely approach to it.

I myself joined the organisation at roughly the point that the implementation plans were being prepared, and my observation at that point was that I felt the consumer duty is very aligned to the way that the Financial Ombudsman Service has always worked.

If you look at the requirement of the consumer duty to offer good outcomes, and you look underneath that at the key pillars that the FCA is pointing to, like consumer understanding or the requirement to avoid foreseeable harm, that is absolutely aligned with what the Financial Ombudsman Service has always sought to do, which is to ensure fair and reasonable treatment of consumers.

When we look at cases now, although we do tag them where that case has arisen in the consumer duty time period—the qualifying period for the duty to come into force—we do not see a huge difference at the moment between cases that we look at post the consumer duty and cases that we looked at pre the consumer duty. We are really looking for the same core principles to be observed.

Q230       Chair: Are people bringing forward cases prompted by the consumer duty that might not have been brought forward before?

Abby Thomas: No, not to my knowledge. That is not something that is cited by the consumers themselves, so the complainants that bring the cases. It is still quite early, from our perspective. Although the implementation date was July for open-book cases, there is a lag period where the issue or error needs to have occurred, and then the business gets the opportunity to resolve it.

This is an area that we will continue to monitor, but at the moment we are not seeing an excessive number of cases overall. We are not seeing consumer duty cited by those complainant customers, but of course we are talking to businesses.

There is one observation that I might share quickly. The Financial Ombudsman Service used to typically have a lot of cases around the beginning or the end of a process, from the customer’s perspective, so around the sale of the product or perhaps the renewal, the transfer, the upgrade or the claim. I am interested—and my team and I are looking into—the fair value component of consumer duty, which really shines a light on the intervening period, how customers are using the product day to day, and the fees and charges that we are paying.

My question with consumer duty is not whether it will change the volumes of cases that we receive; to date, it has not. Rather, will it change the mix? Again, to date it has not, but it is a little too early to reflect too deeply on that.

Q231       Chair: You have run a consultation on charging professional representatives a fee. Where has that got to?

Abby Thomas: We have closed the consultation now. We had a very healthy response to the consultation from across a spectrum of consultation respondents. For example, we had feedback from businesses, from consumer groups and charities, and from claims management companies themselves. On balance, I would say that the people responding were in support of our recommendation and in support of the Treasury approach, which is to enable us to charge those fees.

Of course, that is not universally true. There were some parties who were less pleased by it as a proposal, but the aspect that we still need to reflect on and make sure we get right, if we were to charge a claims management company or professional representative, is, first, seeing what safeguards could be put in place to make sure that the charge is not passed back to the consumer customer, and, secondly, ensuring, as we do with all our cases, that we are thinking about vulnerable customers too and that they are not disadvantaged by this proposal.

With those two aspects in mind, and with the requirement to consult on the detail of the fee terms and conditions, so to speak, we will be going out for a further, more targeted consultation in the next few months.

Q232       Chair: Where do the next few months take us to?

Abby Thomas: It still means that, if we were to implement a fee, we could potentially implement it in October. It is not a longer timetable per se; it is just that, because we had to go out and consult on the actual detail of the proposal, we are going to take that opportunity to look at those other two questions.

Q233       Chair: You will have been following our inquiry into access to finance for small and medium-sized businesses, as well as the debate around small businesses and the level, and about whether the Financial Ombudsman Service really has the capability to deal with some of these small business complaints. You will have seen some of the evidence we have had that you are not. Would you like to comment on that?

Abby Thomas: First of all, I will say that I am really proud of the work we do for the small business community and of the 6,500 cases we resolve a year from business customers. We have a dedicated team that work on these cases. They were recruited on this basis in the last few years, post the expansion of our jurisdiction, so they have a really strong skillset and the ability to undertake this work. We also have additional support, recognising that the SME challenges are slightly different from those of a consumer.

On the one hand, we have an advisory body that would comprise organisations that can speak really knowledgeably for the SME community, like the Federation of Small Businesses or the British Chambers of Commerce. On the other hand, we also have an expert panel who were recruited for really specific but impactful and important issues that might affect an SME complaint, like tax treatments, accounting treatments and so on.

We are helping the small business community. As with our other timeliness stats, we are doing this more quickly than before, and there is good awareness of the service that we offer.

Q234       Chair: You have a specialist team, but sometimes there are inconsistencies between the decisions they make for businesses and the decisions they make for consumers. We have heard this particularly around the way you handle the personal guarantee issue for small businesses.

Abby Thomas: Sometimes that is driven by our jurisdictional perimeter, if I can call it that. It is around the type of cases we are allowed to look at. For example, if a business customer was pursued for a personal guarantee they did not in fact take out, and a consumer customer was put in the same position, we would be able to look at that consumer’s complaint, but we would not necessarily be able to look at that business customer’s complaint, which I agree seems like a gap.

Following the SME finance meeting, I wrote to the FCA with a list of gaps like that where we could perhaps do more to help the small business community.

Q235       Chair: You mentioned commercial hiring and leasing in your evidence. There is a letter out there that it would be quite interesting for this Committee to see, if you could share it with the Committee, talking about other gaps in addition to those ones you have already mentioned.

Abby Thomas: Yes, absolutely. I would be happy to share that.

Q236       Chair: We would love to see that. Thank you very much.

That was going to be my next question. Are there any other issues that you think should be within the scope of the FOS in terms of small businesses?

Abby Thomas: Personal guarantees is quite a big topic in its own right. Also, my team have already met with the Federation of Small Businesses, but I would like to meet with them myself as well. We are setting that up to look at some of the feedback that was raised, as you say, off the back of the SME finance hearing, but also through our casework.

That is an area where there could be more clarity for the business customer who is being asked to consider that personal guarantee or subsequently pursued for that personal guarantee. There is more that we could do but, again, there are some perimeter issues there that would need to be resolved.

Chair: We look forward to seeing that letter with the full list.

Q237       Stephen Hammond: Good morning. I would like to ask you a few questions about de-banking, if I may. In the ombudsman’s letter to the Committee on 6 October, you set out some data. In terms of new banking cases, there was an increase of 11% one year and 7% the second year. You gave half-year data for the year 2023-24.

I wonder about three things. First, could you give us some flavour of where the data is at the end year or as we approach the end year? Secondly, why do you think the trends are showing this increase in the number of complaints? What is the balance between general and restricted? Thirdly, you make the comment that you think new cases are more important than resolutions. That is because you had dedicated more staff to resolutions. Is that still the case?

Abby Thomas: First of all, yes, we have seen over the past years an increase of activity in this area. By that I mean an increase in complainants coming to us where they feel that their account has been restricted or closed inappropriately.

We saw that in the last two years, so this is not a new trend, but we certainly saw this year, particularly in the first half of the year, that the numbers increased for us. That growth rate, if I may call it that, has subsequently tailed off. Some of it may be driven by greater awareness, because there has been a lot of coverage of this topic, so that possibly has had some impact.

We drew attention to the difference between a general account closure and a restricted account closure because, typically, they are driven by different factors. This may not matter, to be frank, to the consumer customer, because in the end they have a bank account they cannot use. I appreciate that, but from the bank’s perspective, where we would describe an account closure as being restricted, that implies that the bank may have some concerns about inappropriate activity, such as money laundering or similar.

Where we have seen the increase is more on the general account closure side, which might indicate that the bank has just seen account inactivity, rather than inappropriate activity, or perhaps is seeking to exit a sector. Tying the two questions together, we have seen that perhaps increase a little on the small business side as well.

Q238       Stephen Hammond: The balance of the increase is that they have been more in the general as opposed to the restricted complaints.

Abby Thomas: Yes, but we are not talking about a huge number of cases. We took about 2,700 each year. It may be sensible for me to write back to you to give you detail because, as I say, this has been a year of change and we have seen the numbers increase quite a lot more rapidly in the first half than the second. I may confirm that in writing, if that would help.

Q239       Stephen Hammond: That would be helpful. The other couple of points were about the fact that you said that the number of new cases was more important than resolutions, and that was because you had put more people on to resolutions. I just wanted to see whether, in terms of the de-banking cases you have seen, you are still allocating more staff to resolution.

Abby Thomas: The point we were seeking to make there was that the number of new cases gives a better indication of the current status of how often a bank seeks to take that action for whatever reason. That is best judged by looking at how many times customers are now raising that issue to us.

Our resolutions are absolutely our primary activity. That would mean we are issuing a view, which is our first stage, or a decision if that has been required from an ombudsman. That measure really tells you more about how much resource we have allocated to the area. It is not that one is more important than another; it is more that they tell you something different.

Q240       Stephen Hammond: But I am right in thinking that you have not decreased the number of people working on resolutions in this area.

Abby Thomas: Not to my knowledge, no.

Q241       Stephen Hammond: You will have seen the recent report from the all-party parliamentary group on fair business banking, which said that lenders were “freezing legitimate customers out of the financial system due to their opinions or lifestyles or because of cost”. Can you say whether, in your investigations and the number of complaints coming to you, you have evidence to support that? If so, what has been the trend?

Abby Thomas: On our case load alone—and that is quite an important caveat—we have not seen evidence that customers are routinely de-banked on the grounds of political expression. We do not have cases of that nature very often, so I have not seen that trend.

What we are more likely to see is, again, more commercial decision making on the part of the bank, such as the bank no longer wanting to serve that sector. For example, there are 25 or so cases from charities that have come to our service, where the banks have sought to close access to their accounts. The uphold rate in that area is quite high. It is about 49%, which means we have found in favour of the charity 49% of the time. That is one area where the banks have taken a certain approach in those 25 cases.

The second area would be, again, concerns over some form of economic crime, and the third area is more around account inactivity. Sometimes, perhaps, there are commercial considerations over the cost of serving those customers, like expats, for example. That, again, is an example of certain banks making commercial decisions on who they best want to serve, which we would always look at.

If anyone is concerned that they do not have access to their bank account and they need it for personal or business reasons, we would always consider their case if they have given the bank the opportunity to resolve it first.

Q242       Stephen Hammond: I have two questions based on your answer. I have recently had a constituency case where a constituent had an account closed because the bank thought they might have been money laundering. They had banked with this bank for 20 years. There was no reason to suggest that and, after a discussion with the CEO, the bank admitted a mistake.

Are you clear that the criteria that the banks are using within the restricted category that you have talked about are being transparently applied by the banks? That is the first point; I will come on to the second point.

Abby Thomas: Obviously, the bank sometimes is not able to communicate transparently that it has that concern because, from the bank’s perspective, it does not want to go too near any potential tipping- off. That is understood.

For those larger banks where we had a number of de-banking cases, my deputy chief ombudsman wrote to individual bank CEOs separately saying, “Please can you make sure you are addressing these cases as quickly as possible?” I would always hope that, as is their obligation, the banks are looking at our findings and applying that to their wider case load.

Q243       Stephen Hammond: Perhaps I used the word wrongly. I absolutely get the point that they cannot always transparently tell the customer. What I am asking is whether they are applying those criteria consistently, in your opinion.

Abby Thomas: We work on a case-by-case basis.

Q244       Stephen Hammond: I guess that withdrawals will affect a lot of the small SMEs. Within the inactivity and withdrawal numbers you have seen so far, how much of that is affecting the small SME sector?

Abby Thomas: I believe that the latest dataset we have on small business de-banking complaints suggests that we have received 300 complaints this year, against a backdrop of 2,700 in total across personal and business customers.

Q245       Stephen Hammond: Is that consistent, as a ratio, with the previous two or three years?

Abby Thomas: Perhaps I can come back with more detail on that for you.

Q246       Stephen Hammond: In terms of that, is there any one of the rationales where those complaints are coming from?

Abby Thomas: No. A similar set of concerns are raised around personal bank accounts—so, again, account inactivity, commercial reasons and so on. It is not very different from the consumer side, but we can, by all means, investigate those cases in a bit more detail to give you more of a thematic perspective.

Q247       Stephen Hammond: That would be helpful for this and for our SME inquiry.

You will have seen in the recent APPG report that I referred to that the MPs heard testimony from industry sources that the FCA had encouraged banks to prioritise their reputation over duties to customers. I wondered whether your service had any evidence to support that claim.

Abby Thomas: I am not aware of that, obviously. That is more a question for the FCA. I have not seen that advanced in an argument myself, but we have many cases with the service. It is not something that I am aware of.

Q248       Stephen Hammond: Finally, in your data over the last year, what proportion of the increase has been due to politically exposed persons?

Abby Thomas: We have not seen cases that relate to politically exposed people, to my knowledge. We have seen cases where the bank’s perception was that a group may have had some association with extreme beliefs and potentially some criminal activity. That was the nature of the bank’s concern, but that would be it. It is not something that is commonly cited when people raise cases to us.

Q249       Dame Siobhain McDonagh: I would like to talk about the authorised push payment fraud reimbursement scheme. A case was reported in The Sunday Times about a fraudulent property investment scheme. At least 81 people invested in the scheme, losing £7 million. Some people took their case to you. The service has told 14 people that they cannot get a refund, but others have been told that the bank should reimburse them.

It seems like some people are refunded for scams and some are not, depending on the day that you ask. Do we have a problem with how consistent the ombudsman service is? Can you understand why, to some people, it seems like a complete lottery?

Abby Thomas: I cannot reflect on that specific case or set of cases, but I will reflect on the banking landscape from an authorised push payment perspective. There is quite a variance in treatment of customers in this space. At the moment, there are broadly three categories. There are those banks that have not signed up to the CRM code—the contingent reimbursement model.

Q250       Dame Siobhain McDonagh: Sorry, Abby, would you mind just addressing whether you think that your service is inconsistent?

Abby Thomas: I do not believe we are, and I have not had examples raised to me of major inconsistency. Back to the comments I made to the Chair, of course we look at the individual circumstances of a customer. It might be that a customer who is more vulnerable, perhaps under more financial or other pressures, is, in turn, more susceptible to fraud and scams. We would absolutely take that into account and consider it when we are looking at what is the right standard of caution on behalf of that consumer.

When it comes to the facts of the case, we are really looking at what commitments the banks have made in the form of signing up to the CRM code, or other commitments like TSB’s fraud guarantee, for example, and how they treated the customer at the point that they raised their complaint to them.

Q251       Dame Siobhain McDonagh: In this Sunday Times article, it says that 31 people took their case to the Financial Ombudsman Service, “which has recommended that the banks reimburse the customers under the voluntary code. But 14 investors have had a letter from the ombudsman saying it no longer recommends a refund because the scheme is not a scam.”

Abby Thomas: Again, I can take that away and come back to you. It sounds like there is some detail there to be considered. I am afraid I cannot discuss the details of cases, but I am happy to respond.

Q252       Dame Siobhain McDonagh: Let us move on to what also seems like inconsistency in the case of individual banks. Some banks like Nationwide refund 91% of fraud cases, but others, like Monzo, have only refunded 6% of fraud victims. Are some banks treating their customers worse than others? Do you have a trend? Do you know which the good banks are and which are the worst banks in terms of reimbursement?

Abby Thomas: As you are aware, the PSR published a report on this topic recently with all its data across all the banks, which I personally found very interesting reading. Again, it did show some variation across the banking landscape.

The two areas I really looked at were the refund rate, but also the loss suffered, because it is important that banks can address both. It is important that banks are able to prevent the loss in the first place, and that is something we put a lot of attention on at the ombudsman service. Are they issuing effective warnings? Are they making sure their consumers are as protected as they can be? Also, are they refunding as many instances of fraud as occur, and the value of that fraud as well? That was the second dimension that really jumped out of the PSR report.

Again, I would agree that there is some variation in terms of which banks are acting as a strong line of defence and then which banks are refunding. Ideally, you really want the former. You want the banks to try to stop the fraud from taking place, which is in their interest too, of course, plus the refund.

Q253       Dame Siobhain McDonagh: Is the age of the bank and its IT equipment a factor in whether it can stop this from happening in the first place?

Abby Thomas: It may well be, but we would not consider that a realistic or good reason why not. We need to walk in the consumer customer’s shoes here and think about what a distressing and upsetting experience fraud is. I would expect any bank to start from that perspective and to think about how it can help customers, who sometimes can be at a very vulnerable point in their lives, and how it can stop them from being put in that position.

It is not only on the banks—I must say that too. There are other industries that have a part to play in reducing the prevalence of fraud. Of course, the ultimate initiator of all this is the fraudsters—that is absolutely true—but, from the banks’ perspective, I would not expect them to cite legacy IT systems as a reason not to look after their customers.

I am sure you will come to mandatory reimbursement but, at the point that that comes in, a lot of the variation in practice should diminish as well, so banks should be preparing for that.

Q254       Dame Siobhain McDonagh: What do you think of preparing a league table?

Abby Thomas: We do share data on banking performance. As part of our overall data strategy—it is one of our three core pillars in the service—we are looking at what more we could do in that space. But we are certainly already sharing data with the FCA and the PSR, so they have access to our insight.

Q255       Dame Siobhain McDonagh: What about the public, though? It may inform their decision on who they have their bank account with.

Abby Thomas: For the Financial Ombudsman Service, our overall three-year strategy can be summed up as saying that we want customers who come to us, whether that is a complainant or a business, to feel that they received a better outcome—that they were put back in the place they would have been in had the issue not occurred and/or that they are better informed. That is what we are really trying to get to.

The point you are making here is that this is an opportunity for us to help them feel better informed, ideally before any problem ever occurs. Yes, we would consider looking at what we can publish to help consumer customers and banks as well.

Q256       Dame Siobhain McDonagh: If we talk about your backlog, the difficulties you have had and how large that is, how are you going to cope when the authorised push payment fraud reimbursement scheme is up and running? Victims of fraud will become more aware of what they are entitled to. How are you going to manage the case load then?

Abby Thomas: First of all, we have reduced the time it takes us on all cases, but on fraud cases as well, despite the increasing array of tactics that fraudsters are using and the complexity of the cases. That puts us in a better position.

There is work for us to do, and we want to do that with industry so that it knows what to expect from us ahead of the implementation timetable. Some of the digital transformation that I touched on briefly at the beginning will help us with that, as well as making sure we have the right skilled and experienced people to support this work.

At the very beginning of this financial year, we put in place a model where our caseworkers, investigators or ombudsmen are now assigned to a product area, so we have dedicated fraud and scams teams. That was not necessarily the case consistently in prior years. That helps us too because it means we have a team of people who are standing by who really understand this area and understand how it feels.

Q257       Dame Siobhain McDonagh: What happens when your case load increases exponentially? You might have car finance coming down the road as well. I would advise you to swerve that one.

Abby Thomas: No doubt we will discuss motor finance a little later, so I will stick to fraud and scams for now. We are preparing for that implementation. We think that that will take effect in quarter 4. We are very aware of some of the changes that the PSR is planning to make, and we are working on our operational readiness to ensure that we are well prepared and that customers can still come to us and look to us for help.

Q258       Chair: Is it possible that the case load might go down in this area after that automatic reimbursement comes in?

Abby Thomas: I would really hope so. I will add a note of caution. In the past, when new regulation has come in, we have often found that there is a bedding-in period. There are some genuinely new features in the PSR’s approach, particularly the way that responsibility will lie between the sending and the receiving banks. Pragmatically, we are expecting some uplift at the end of the year, but hopefully it will resolve the picture after that.

Q259       Dame Siobhain McDonagh: Can I ask about buy now, pay later? You have the push payments. You potentially have the car finance. You also potentially have buy now, pay later.

In February 2021, the Government announced their intention to regulate buy now, pay later products. Three years later, we are still waiting, and now we are hearing that the plans may be shelved. We still do not know the scope of the regulation or the date it would come into force. Does that make it harder for you to forecast the volume of cases you will receive in the future? Has Government indecision made your job harder?

Abby Thomas: We are aware that buy now, pay later is not yet in regulation but could be. We have been preparing on that basis. We have had a project team mobilised and working on this for some months.

Buy now, pay later is interesting because it is clearly a popular source of credit, or similar to credit, for a lot of people, but also because it is a product that is sold and served digitally. There is not often any human interaction when the customer takes on that product or uses that product, and we need to respond to that in kind. That is why we are looking, as part of our digital transformation, at how we can make it a lot easier, if you are a consumer customer, to come to the Financial Ombudsman Service via our website.

For example, we have changed our “raise a case” journey online quite significantly, partly with future regulatory change for buy now, pay later in mind, to better support that kind of customer and that kind of product. There is more for us to do here, but that is one way we can make sure that we are ready for that change when it arrives.

Q260       Dame Siobhain McDonagh: That quite worries me because, when we have discussed buy now, pay later on the Committee, we have discovered that a lot of people do not understand that it is credit. You are going to be dealing with a group of people who potentially you do not see a great deal of at the moment. These people are poorer and likely to be less able in terms of your digital pathways. There are a substantial number of people now using buy now, pay later as a way to buy their daily or weekly food shopping.

You are going to deal with a lot of people on means-tested benefit, particularly universal credit, and one in three people in that category are now behind on the buy now, pay later repayments. How are you going to cope with a lot more vulnerable people who are less aware of the systems that are normally involved in making a complaint to the financial ombudsman? I do not really see sticking it on the website as the answer.

Abby Thomas: Absolutely, that is not our intention. Today 60% of people contact the Financial Ombudsman Service using the phone initially or by email, because they are sending us case files and documentation. We think that that works very well. We will always maintain that channel of choice for our customers.

We will not be requiring any consumer customer to use the website, but there is a group of customers who prefer that. It is not an easy conversation to have with a person to say, “I am in a lot of debt and I am not able to get help for it.” Having the website not as the only means, but as an alternative, is really useful.

On the broader vulnerability point, I could talk a lot more about this. I will just say that we have initiated a really big training programme for all our casework staff that starts this coming year, so that we are really well equipped to deal with vulnerable customers to the very best of our ability. It is really important to us.

There is probably a much longer answer to your question, but we are trying to make sure that we are offering channels that work for the whole range of customers, whatever their background, and that, when a vulnerable customer comes to us for help, we are dealing with them really well, as we would expect, frankly, of banks, BNPL providers or any other provider.

Q261       Drew Hendry: I want to continue on the theme of future complaints. Your budget consultation indicates that the latest forecast for complaints is 179,000. That is below the original figure of 184,000. Why is the number of complaints lower than forecast?

Abby Thomas: Our pre-consultation budget took a range of responses from businesses and interested parties. We are reflecting on that and building some of that into our budget. Our finalised budget is not quite the same as our consultation budget, and it is more likely to go up. Please bear with me as we work through that. Of course, I can provide you with more detail over the next few weeks.

We have found over past years that the trend in terms of incoming complaints is largely flat. When you consider that the consultation budget was issued before the FCA announcement on motor finance commission, that is one reason why we might seek to use this opportunity to ensure we have forecast as precisely as we can.

While this year we have forecast very precisely the volumes that we would receive, we are not reliant on that alone. It is incumbent on us not only to try to forecast correctly, but to build flexibility into our operations as well so that we can cope with the ups and downs of demand.

Q262       Drew Hendry: Let us just pursue that a wee bit on car finance. The consultation indicates—I think I am quoting correctly—that you have not seen any increase in complaints about car finance commission or the British Steel pension scheme incorporated into that forecast, but you have just said that there is likely to be movement on that. Will this trend materialise later, then? Is that what you are saying?

Abby Thomas: Yes. This year we received, for much of the year, in the low thousands of complaints on motor finance in total. In the last couple of months, we have seen that number increase quite significantly, and we are now taking some insight from the FCA as well.

First of all, the FCA has changed the complaint handlings rules, as you will be aware. That will probably change the profile of our complaints and when we should expect them, pushing some towards the back end of the year. In addition, there is greater awareness of motor finance currently, so we would probably add in some more, and that is really one of the responses that we got back from the consultation feedback that we are seeking to reflect now.

Q263       Drew Hendry: You say that you are seeing this significant increase, but is this likely to continue to spike? Are we looking at a problem that might be nearly as big as the PPI claims for you, for example?

Abby Thomas: At the moment, we have approximately 15,000 cases on motor finance. That is a significant number of cases. There is a practical difference, from our perspective, as to whether those cases relate to discretionary commission agreements, where the new rules have been put in place. The best scenario would be if the banks are able to resolve those in a way that is satisfactory to customers at first pass, but if they do not, they will come to us towards the end of the year. We are keeping a close eye on the volumes of non-discretionary commission agreement motor finance complaints, which are also more sizable than we have received in prior years.

Q264       Drew Hendry: Are you saying there is currently no backlog for you on this issue?

Abby Thomas: No. We still have a large number of open complaints to work through. We have received the majority of them in the last year. We have trained 110 people within the casework teams to deal with these complaints.

Q265       Drew Hendry: How big is the backlog then?

Abby Thomas: I would have to confirm how many of those cases are over 12 months old. I am afraid I do not have that with me. Again, we have received quite a large number—several thousand—in the last few months, and we are working through them.

Q266       Drew Hendry: Can you supply that information to the Committee?

Abby Thomas: Yes, of course.

Q267       Drew Hendry: How quickly are you able to process these once you have them?

Abby Thomas: I will make a couple of points. Our general complaint resolution time is now three months. When I started, it was taking us 6.4 months to resolve a complaint; it has now gone down to three. That is good, but it is still customers waiting, and we recognise that.

For motor finance, it does typically take us longer, but I would have to confirm how much longer. The reason for that is that the nature of the complaint is such that the consumer often does not know what commission agreement they were subject to, which is very material to the case. They do not know if there was a discretionary commission arrangement behind the scenes. We have had to ask consumer customers to go back to their own paperwork if they have it, but also to work with businesses. Even the businesses have struggled a little, frankly, to give us the information we need to work those cases as quickly as we would like.

We have fed all that back to the FCA. We have made referrals in a few cases, where appropriate. Businesses now better understand that expectation and are working with us better, but it has probably taken us longer than is ideal to work through those individual cases.

Of course, the decisions themselves, as you will all have seen, are quite significant, as are the final decisions that we have issued. As you can imagine, we put care and attention into making sure we have really articulated our position on those cases.

Q268       Drew Hendry: Do you have concerns about your ability to deal with these if they increase dramatically?

Abby Thomas: It is a very movable picture at the moment. As I said, we have received a lot of cases in the last few months. I have already described our digital transformation, our ability to handle vulnerable customers better, and the fact that we have reorganised our team so that they are supporting specific types of products like motor finance. We have a dedicated motor finance team. This will all help us, but we need to keep a very close watch on this area.

Q269       Drew Hendry: We mentioned earlier in the session the impact of buy now, pay later agreements. Do you feel that there will be a bigger impact from the cost of living crisis in 2024-25 than there was in 2023-24?

Abby Thomas: Perhaps surprisingly, it is a little hard for me to identify a case that has been directly brought to us as a result of cost of living, because that is just not how consumer customers typically describe the problem.

Q270       Drew Hendry: You must have an interpretation yourself.

Abby Thomas: Yes. For example, we are seeing a rising number of consumer credit cases. Under the hood, you could say that that is probably driven, at least in part, by cost of living.

Q271       Drew Hendry: Do you think there will be a greater increase? That was the question.

Abby Thomas: Yes. We are likely to see some more consumer credit cases coming into next year. That is based on the last quarter of data, which was not available to us at the point we put the consultation budget together.

Q272       Drew Hendry: Finally, have you seen or are you concerned about an increase in any other types of cases that might be coming your way?

Abby Thomas: We have mentioned all the key areas for us. The third one I would probably add is authorised push payment and mandatory reimbursement towards the end of the year.

Q273       Chair: On the origin story for these finance commission cases in the car sector, my understanding is that FOS decided to uphold some complaints that you had previously been rejecting in this area, and that is what has prompted the FCA to act. Is that your understanding as well?

Abby Thomas: The FCA put in its annual report a few years ago that motor finance, and the commission arrangements in particular, was an area that it was looking at. The FCA subsequently went back and, as you know, banned some practices around discretionary commission arrangements in 2021.

Subsequent to that, we had not had too many complaints in this area. It was in the hundreds, but in 2022-23 we started to see volumes increase. We flagged that to the FCA, and we started working through our lead decisions. We shared the themes that we had been seeing across our casework with the FCA as well. That played a part in the FCA deciding to take the action that it has taken.

Q274       Chair: You would not be acting on cases that predate 2021 then.

Abby Thomas: We have cases where we are looking at the historic application of a discretionary commission arrangement and the complaint handling around that, yes. We are not solely concerned with how businesses are responding post 2021, because the principles that the FCA had articulated prior to that point, as well as some other legal and regulatory inputs, lead us to believe that businesses did not always treat customers on a fair and reasonable basis before 2021 either.

Q275       Chair: It could have been perfectly legal. Are you not concerned that you are being retrospective and inconsistent?

Abby Thomas: The statutory base of the Financial Ombudsman Service is to look at the law, regulation and best practice at the time. The bar for us is not just whether it was legal; it is also whether it was a fair and reasonable treatment of a consumer customer. Our position is that, when there is any arrangement between a consumer customer and a business, if a commission is linked to an interest rate, for example, or a positive financial outcome is arrived at for the business but the consumer might end up paying more for that, businesses should be transparent and make that clear to the consumer customers.

Q276       Chair: If they made it transparent, you would find in favour of the business.

Abby Thomas: There are a lot of cases in this area that relate to many different commission types. It is not a particularly straightforward picture in terms of what practices were in place in industry across different firms and at different times.

As always, we would take into account the position of the customer themselves, what was communicated to them and whether they were vulnerable. It is quite difficult to generalise across all the cases that we have. We are still working through this.

Q277       Dame Angela Eagle: I want to ask about fractional timeshares. Could you tell me how many cases there are in your backlog related to fractional timeshares?

Abby Thomas: I do not have here how many cases more than 12 months old relate to fractional timeshares.

Q278       Dame Angela Eagle: This goes back six years in terms of compensation and redress. How many of those cases are you dealing with?

Abby Thomas: Over the last three years, we have resolved 5,600 cases in this space. You may be aware that we were subject to a judicial review, which concluded in 2023. Following that, we have issued a further 2,500 views, which is the first stage of our process. We still have approximately a further 1,000 views to issue, which we hope we will do before the end of this financial year—that is, in the next few weeks.

Normally, once we issue a view—again, the first stage of our process—in only about 20% of cases is that view then challenged by either party, so only 20% go through to an ombudsman decision. In this area, we have seen a higher referral rate. Parties on both sides of these disputes have strong feelings about the rights and wrongs of the situation, so that may mean it takes us longer to fully resolve the cases, to move to the next stage and to issue an ombudsman decision, but every consumer with a fractional timeshare complaint should, we hope, receive a first-stage answer by the end of this financial year.

Q279       Dame Angela Eagle: That is 9,100 cases that you have referred to now. Are there any more in your backlog? You must know how many people have contacted you with a case about being mis-sold a fractional timeshare?

Abby Thomas: I will come back to you with the exact details, but I know that we have resolved 5,600.

Q280       Dame Angela Eagle: I am going to ask you about those in a minute, but I am asking you about your backlog, because this is a mis-selling issue. Companies were involved in selling upgrades and timeshare upgrades to people, and they were financed by banks including Shawbrook Bank, Clydesdale Financial Services and Hitachi.

You have decided that that was mis-selling in lead cases, which you have resolved from that point of view. You were then subjected to judicial review, because your remedy, as I understand it, was setting aside all the loan agreements for fractional timeshares, refunding all repayments that customers who were mis‑sold these things had made on the loans they took out from these banks, and then awarding 8% per annum interest from the date of loss to the resolution of the complaint.

Although it was challenged in court, it was not challenged successfully by the bank, so the redress is there in black and white. It is not hard to interpret, and yet you are still not getting these people their money back, nearly a year after the judicial review was taken. When are you going to get them their money back? This is a clear case of mis-selling. You have found that the banks concerned, which do not want to be on the hook for repaying the money, have taken you to court and lost. When are these people who have been mis-sold this dodgy product going to get all their money back with interest?

Abby Thomas: First of all, not every case that we have received on this gets upheld by our service. We do not always find in that way, but sometimes we have. We took the litigation, as you mentioned—the judicial review. That was because it was our perspective as well that there are a significant number of consumer customers who have not been treated fairly and who should receive their redress. I am happy that we have been able to issue so many views in the period since the judicial review.

Q281       Dame Angela Eagle: Nobody has got a penny back yet, have they? You have your 2,500 views and you hope to do another 1,000 views before the end of the financial year, but not a penny in recompense has been paid back to any of the people who were conned into buying these dodgy things.

Abby Thomas: On the views, it is very likely that they will be opposed by one of the two parties in the dispute, either the respondent business or the consumer, who sometimes is professionally represented. That does mean we have to then look at each case afresh. That is delaying us in closing these cases and making sure, where appropriate, that the consumer receives their redress.

I must stress, because I am particularly conscious that we are an impartial service, that we do not always find that the consumer is entitled to redress. Where we do, it is in the interests of all parties that the guidance that we have already issued on the cases, and the guidance that became available at the end of the judicial review, is followed, but it is the right of either party to disagree.

Q282       Dame Angela Eagle: Why bother with the lead case if it does not resolve your case load, then?

Abby Thomas: The lead cases have enabled us to issue the views. It is a matter of statute that if one party disagrees with the view they can ask for an ombudsman decision. I agree with you that that delays the resolution for the consumer customer. To be honest, irrespective of whether we have upheld the consumer customer, that seems a pity to me. We would like to be able to provide those consumers with finality. They have been waiting a long time.

Dame Angela Eagle: We are now saying that the lead case does not really resolve anything. You have to look at all the individual cases after you have been judicially reviewed to death by the banks that do not want to give a penny back. Is that an acceptable system for redress when people have been mis‑sold a dodgy product, which everybody now recognises is dodgy? You have issued a very clear view on what your remedy should be, which is basically not only that they should get their money back, but that they should get interest on the money that they have been paying back, as well as having the loan set aside. Why can this not just be dealt with? What is the point of doing a lead case if it then has no implications whatsoever for any of the others? It has just delayed things for years.

Abby Thomas: When we put forward a lead case and it is judicially reviewed, typically both parties accept the view as expressed in the judicial review. They will sometimes even take back the case, because they think it has a limited prospect of success, or proactively settle it, for example, if it is the business. That often happens following a judicial review.

That has not happened for these particular consumer customers, and both parties have sought to ask us to review each case afresh using an ombudsman. You are right: that means it will take longer for those consumer customers who are entitled to redress to get it, but that is the process as set out in FSMA that we have to follow.

Q283       Dame Angela Eagle: How many more cases do you have to come to a view on, as you put it?

Abby Thomas: It is about 1,000.

Q284       Dame Angela Eagle: Is that it? We are only talking about 3,500 outstanding cases.

Abby Thomas: I will double-check the numbers and write to you.

Q285       Dame Angela Eagle: Will you write to us? We would like to have the actual amounts. Since the High Court, why has not a single customer mis‑sold these dodgy timeshares had a penny of their money back?

Abby Thomas: I cannot comment on the redress that gets paid to the customers. What I can comment on is the state of the cases that we hold with our service. It is really the same picture that I have described previously. We have a certain number that we have fully resolved, which is the 5,600 I originally talked about. Then there is a further tranche that we have completed our first stage on, with some more to work through. Again, dependent on the parties, we may need to write decisions on each of those cases as well. That really sets out our timeframes.

Q286       Dame Angela Eagle: How long will that take? For example, you said that 20% are usually challenged, but your implication in your answer to me was that a far higher percentage of these are going to be challenged, if not all.

Abby Thomas: Yes, 70% is the current referral rate.

Q287       Dame Angela Eagle: Why is the challenge rate so much higher in this instance than it is in other instances when you have had lead cases, come to a conclusion and suggested a remedy?

Abby Thomas: It is because both parties in the case, both the respondent businesses and the consumers—again, sometimes with the support of professional representatives—have chosen to ask for that second stage in higher numbers. That just reflects the strength of feeling and the complexity of some of the arguments advanced as well. It is their right to do that.

Q288       Dame Angela Eagle: Why is it that complex if you have a lead case and you have a remedy? People have been sold these dodgy things. They have taken out loans with the banks I mentioned. The banks do not want to give the money back, but you have decided that they should. Why does every single case have to be relitigated?

Abby Thomas: The position of the Financial Ombudsman Service is very much that the judicial review clarified our position. In other, similar situations where a judicial review has been successfully defended by the Financial Ombudsman Service, we have seen businesses or consumers choosing not to take matters further forward but to abide by the decision. That is simply not the case here, and we are bound by our process to offer that second stage.

Q289       Dame Angela Eagle: There is an incentive for the banks that lost the judicial review to carry on arguing.

Abby Thomas: It would elongate the process from the consumer’s perspective.

Q290       Dame Angela Eagle: These timeshares are often bought by quite elderly people. Are the banks hoping they are just going to die in the meantime?

Abby Thomas: I cannot comment on the banks’ motives, but I would also say for fairness and balance that the claims management companies or professional reps are also referring cases to the ombudsman for decision. Again, that is the right for both sides. They are entitled to do that. However, we remind all parties—professional representatives but also respondent businesses—that we are in a situation where all businesses should be looking very carefully at our findings, because they are obligated to do that and to take them into account. We do remind them of that, but ultimately, if they are requesting the next‑stage review, it is something that we do have to do.

Q291       Dame Angela Eagle: Should we have disincentives by increasing the interest rate the longer it takes? Do you have any deadline for dealing with these cases?

Abby Thomas: The same service standard applies to these cases as to any others. Clearly it has taken us much longer to resolve these cases than either we would like or is typical of the service, and that is a real shame. I sympathise with the position that the consumers are in here. Our key objective is to resolve as many of these outstanding cases as we can, with quality.

Q292       Dame Angela Eagle: After the initial stage has been taken—the view—what are the next stages before compensation and redress?

Abby Thomas: If required by either party it would be an ombudsman decision. That decision is legally binding. It can be rejected by the consumer, and they could go back to court if they wish. But the key stage here is to either have a view that is accepted by both parties, which could be a matter of weeks for many of these customers, where they are outstanding, or to have a decision, which would normally take, just to give a sense of it, a further three months.

Q293       Dame Angela Eagle: That is three months to work through the first one of the views, but how long will it take to work through 3,500?

Abby Thomas: We progress them in parallel. We do not do them sequentially.

Q294       Dame Angela Eagle: So as soon as the first one is resolved the rest are resolved. That is not how you do it. You have just told me each one has to be looked at individually.

Abby Thomas: We work on many cases in parallel, but once the view has been issued, and as soon as the consumer or business asks us for an ombudsman review, it would then go to the ombudsman. The ombudsman would then review it. We would have multiple ombudsmen working on these cases.

Q295       Dame Angela Eagle: If the new FCA consumer duty had been in place when these fractional timeshare con things were mis‑sold, would it have made any difference?

Abby Thomas: The consumer duty really points to the need to think about foreseeable harm. These are very, very long-term products in their nature, so there would have been an emphasis on the business that sold them making sure that, if the consumer’s life circumstances changed, the implications of that were made very clear to the consumer. It would have put the requirement on the business that is selling the product to really explain exactly what is entailed in that purchase, what the terms and conditions are and so on.

It could only have helped, but I do go back to an answer I gave earlier. The Financial Ombudsman Service has always held businesses to a standard that is not the law and not even regulation, but a fair and reasonable treatment of customers, taking into account both the existing law and regulation at the time.

Chair: Just for the record, in terms of the complaint on your website, the three main providers of this finance were Shawbrook Bank, Clydesdale Financial Services trading as Barclays Partner Finance, and Novuna, previously known as Hitachi Capital. I am just reading that into the record.

Q296       Keir Mather: I would like to ask you some questions about the independent assessor and the complaints rate at the Financial Ombudsman Service. In 2022-23 there were 3,717 complaints, 649 of which were looked at by the independent assessor. That is about 17% of cases. Is that a rate that the FOS is happy with, and do you think that it represents good scrutiny over the decisions that are taken in those cases?

Abby Thomas: Yes. First of all, those 649 independent assessor complaints are against a backlog of 200,000 cases. On one hand, it is a positive that the number is not excessively high. We would be worried about that, but from a scrutiny perspective you also want to make sure that anyone who wishes to know knows that the independent assessor is there. The independent assessor performs a really important role for us.

What I look at probably a little more closely than the absolute numbers, which do fluctuate a little year on year, is the breakdown where the independent assessor has said, “There is no issue here,” and they are not in agreement with the consumer who has raised the issue, or, “There is an issue, but it has already been put right by the Financial Ombudsman Service.” We are not perfect. We want to make sure that if we do not treat customers quite to the standards that we would expect, then we are putting it right very quickly. That is also important.

The third category is where the assessor has said, “Actually, the service should have done more.” When you look at that, the independent assessor found that to be the case in 163 cases, which I am absolutely sorry about. Zero would be a much better number, but it does indicate to me that the independent assessor is looking very closely at each case that comes to her and saying, “Well, could we have done more?”

We have done a lot of work on our service complaints in general, which is absolutely appropriate because of the role that we do. We need to hold ourselves to at least the same standard we hold other businesses to, and I am happy on that front. Our service complaints ratio, which is not just the independent assessor, but any complaint about our service, has reduced in the last year, but I would like to see it go down further.

Q297       Keir Mather: If those figures are for 2022-23, could you provide a more recent snapshot, which the Committee might not have, as to where you are since then?

Abby Thomas: Yes, I am absolutely happy to write back with that information. I will say that the underlying themes that the independent assessor is drawing out are quite consistent between this current year and last year. They are around communication, around making sure that customers know what to expect from us and that we are delivering on those promises, and around timeliness, which, as you have heard, is a real priority for us.

Q298       Keir Mather: There is a separate point around the adequacy of investigations. The independent assessor said that most complaints about the FOS in 2022-23 related to the adequacy of investigations. That is customers complaining not that they have not received an excellent service or an exceptional service, but that they have not received an adequate one. I wonder what more you could be doing to try to meet those concerns in the immediate term.

Abby Thomas: We take every single recommendation from the independent assessor very seriously. There are a number of ways we are always seeking to improve in that area. One is in our initial training. We have completely revised our initial training programme. We have made it stronger. As we have opened some more teams—for example our regional hubs teams—that has really helped us get them quickly up to speed. That goes back to the emphasis that we try to bring on quality and consistency.

For next year, we are also looking at the knowledge management that we provide. We want to make that as structured and as easy to use as possible, so that investigators and ombudsmen can get to the right answer fairly, but also quickly. We are also trying to make sure that we are putting that in place where we have dedicated areas that need more specialist support. I gave some examples earlier from the SME team, where we are using an expert group.

We are looking at recruiting some more very targeted experts in specific areas for general casework—not for small business specifically, but for everyone—to make sure we have that expertise. That might give us expertise around quite complex medical insurance cases, for example. We are trying to think about the whole range, from the beginning when someone starts with us through to those really quite unusual cases that you do not see every day but that require a specialist level of attention.

Q299       Keir Mather: I know that the assessor can assess the adequacy of investigations but not the quality of decisions. Would looking at the quality of decisions better enable the assessor to judge whether a case was carried out adequately?

Abby Thomas: Earlier I described our two-stage process. That is really where we look at the adequacy of the decision. An investigator looks at all the facts, makes the decision, and communicates that to both parties. We will then use our QA process. One in every 17 of those get QA’d. One of the QA questions is effectively, “Did the investigator come to the right outcome? Did they make the right recommendation?” If either party is then unhappy, it can be referred to an ombudsman. Again, we use a quality assurance process, on one in every 25 cases, to make sure we are coming to consistent outcomes and we are doing so with quality throughout the lifecycle.

Q300       Keir Mather: Is there a specific reason why the independent assessor cannot look at the quality of decisions when they are assessing the adequacy of cases? Is there a good reason for that?

Abby Thomas: The independent assessor’s role is really to look at the customer service that we provide, not the decisions that we make. Again, our process is geared around the ombudsman decision being final and binding. Of course, we put a lot of thought into how we ensure the quality of an ombudsman decision, but that is not really the independent assessor’s remit to consider.

Q301       Keir Mather: Is there a mechanism for the assessor to say something if they were investigating the adequacy of an investigation and found it to be sub-optimal and to have produced an inadequate decision? Is there recourse for them to be able to say, “This does not look right to me. Can you take another look?”?

Abby Thomas: The nature of the feedback from the independent assessor to our board is more around the customer service aspect. If someone does not agree with a view, either party can essentially ask for it to be reworked by an ombudsman. If the ombudsman decision is challenged, while it is legally binding on the business, the consumer can reject it if they so wish. There is the potential that a consumer could take that matter to court. That would be a very big step for the consumer, and it rarely happens, but it is available to them.

Q302       Keir Mather: How do senior management at the Financial Ombudsman Service assure themselves that caseworkers are making the right decisions if an independent assessor cannot assess their quality?

Abby Thomas: We look at a number of factors. The first is back to the point on consistency. We look at how often an ombudsman overturns the decision already made by an investigator. That is quite rare. If you took 100 cases, 80 of them would typically be resolved at the first stage—with some exceptions, as I discussed earlier—and 20 get referred to an ombudsman. We look at those 20 cases and say, “How often has that changed, from the ombudsman looking at it to when the investigator looked at it?” It is actually only about 7% of the time. We typically find that our investigators and ombudsmen are coming to the same conclusions.

I am not surprised by that. We have case clinics, so that when we are discussing our approach anyone who is working in that particular practice area can listen, learn and contribute to how that case should be decided. We share findings. When significant cases are issued, they are shared with the relevant group in the service who work that type of case. Our knowledge management system is designed to allow ombudsmen and investigators to understand what considerations have been brought to bear in similar cases in the past.

Q303       Keir Mather: Does the quality team that was set up in 2021-22 have a role in assessing those decisions, and how does that role manifest itself?

Abby Thomas: Yes, we have a quality team that I believe was set up before my time, but we have subsequently refreshed it. They would look at the QA assessments, including an assessment of whether the appropriate outcome has been reached. We have actually done quite a bit of work to refresh our quality framework quite recently. One of the steps that we took was to make sure that, when you look at the number of cases they are sampling, that gives us a high confidence level so that we can proceed on a confident basis and we know that we are doing our job to the best of our ability.

We put a lot of thought into this area. I would add—I perhaps should have started with this—that the quality team are deliberately separate from the casework team. There is no incentive for them to say that a case is of high quality when it is not. We would absolutely expect them to call that out and to draw attention to any findings.

Q304       Keir Mather: From the independent assessor’s notes, one of the things that particularly struck me was where she said, “Of the Reviews where I have found communication to be unsatisfactory, I have made recommendations and or learning points on 56%, which highlights the Service has failed to adequately put things right in the majority of cases.” As you said earlier, and as Dame Angela has referenced, if you are dealing with older people, or people who are in real financial difficulty as a result of decisions that have been taken, this is the human interaction piece of the Financial Ombudsman Service’s work. What is going wrong in relation to those cases, and what can be done to fix it?

Abby Thomas: Perhaps I can just double-check some numbers that you have there and write back to you. I think it is roughly a third, a third, a third: no issue; an issue, but the Financial Ombudsman Service casework team have already put it right; or there was a problem that we should have addressed.

We take our role with regard to vulnerable customers really seriously, and I briefly touched on that earlier. We have made changes over the past few years. It used to be the case that if vulnerable customers identified as such, they were referred to a specialist team. That sounds great, but in practice it meant that it sometimes took too long for that team, smaller than our general population, to be able to deal with those customers. I felt that sometimes, in trying to help those customers more, they were actually not able to help as well as they could. So instead we have now taken an approach where every single caseworker will receive really in‑depth training on vulnerability. Again, this ties back to some recommendations the IA has previously made. Hopefully, it will reduce the number of complaints that come to her team.

Keir Mather: If you could clarify the numbers in the correspondence that you share with us after the session, that would be fantastic.

Abby Thomas: Yes, absolutely.

Q305       Mr Baron: Good morning. Can I just raise with you a few issues that I raised with you about a year ago when you were in front of us, including hybrid working and so forth? I will kick off with staff attrition, churn rate and employees leaving the organisation. The figures are gently improving. The attrition rate when it comes to staff has reduced from 26% to 17%, which is still higher than the target of 15%. The 17% is still higher than it was in 2021. Can you just comment on this? Are attrition rates in new investigators still particularly high? Where are the weak points, as far as you are concerned?

Abby Thomas: I recognise the trend that you have described and the numbers that you have stated. I do have some slightly more recent information that shows that our overall attrition rate is now closer to 14%, and below target, in a positive manner. That is good for us and for our customers too.

We did find that there was a period where our newer investigators were leaving in higher numbers. I do not believe that to be the case now. I can check that but, yes, overall, we are reasonably positive about our attrition rate. It is a good result, considering the operational nature of the work that we do. We monitor it closely.

We have also put some work into our overall reward strategy, looking at the overall pay and benefits arrangements for our staff. That was very much designed to keep us in that healthy place where the attrition is within target levels. That will help going forward.

Q306       Mr Baron: You appreciate the importance of this issue, because by the very nature of your work, long cases can take some time, and therefore having consistency and continuity when it comes to staff is terribly important.

Just following up on a point that Keir was pursuing and on the complaints with regards to FOS, your current job advertisement for investigator roles favours general case‑handling skills over financial knowledge. Do you think you are getting the balance right? I thought that some experience and expertise with financial knowledge would have been essential for the job.

Abby Thomas: I do not think it is essential. It is helpful, but it is about having a balance of skills across the team. On the one hand, I firmly believe that good customer service is good customer service anywhere. There is a lot that can be brought to bear on behalf of our consumer customers so that they can speak to someone who can take a step back and say, “Yes, setting aside the intricacies of some of these products, there are just some basics here that were not observed.” It is about having a range of skills. On one hand, we have people from a more generalist background; on the other hand, we have some really deep financial expertise as well.

Q307       Mr Baron: That is the key point. At some point, you have to have some deep financial expertise. Otherwise you are not going to be coming to adequate and just decisions, are you?

Abby Thomas: That is correct. When I started, the Financial Ombudsman Service was organised such that the casework teams pretty much could handle almost any case day to day. In principle, an individual caseworker could do a pensions case in the first week of the month and then turn to travel insurance in the second week of the month. I am not sure that was the best approach.

Where we have now changed that is to make sure that every single person in our casework team is assigned to an industry sector and, within that, normally to a sub-sector as well. For example, you are an insurance caseworker but you might specialise in travel insurance or pet insurance. That gives that nice blend that you referred to: yes, you understand the principles of good service and good customer handling, but day in, day out you are looking at reasonably similar types of cases, with some flexibility.

We are a demand-led service, as some of the comments made earlier indicate. We need to recognise that there will be points where we have to ask someone to perhaps cross-train so that they can deal with a different case type, and provide us with a bit of additional capacity in an area where the demand might suddenly be much higher than we initially expected.

Broadly, all the people in my team are now aligned to those industry sectors. They prefer it because it gives them greater professional expertise. I have heard repeatedly from industry stakeholders that they prefer it too. It is definitely a good approach for us, and one that we are happy with but are always seeking to evolve.

Q308       Mr Baron: Can I just follow up on the issue of vulnerable customers? None of us is immune to the headlines about AI, intelligent automation, digital portals and all the rest, but what are you doing to ensure that, where vulnerable customers need to make adequate contact with FOS, they are not being confronted by this welter of technology that can be off-putting?

Abby Thomas: We operate a channel-of-choice policy, so if a customer wants to call us, they can call us and they can speak to a human. That is absolutely fine. I will always make the point that there are some customers who genuinely do not want to speak to a person—I discussed that earlier—and would prefer to raise a case online. We put more work into our online presence because that helps that type of customer, but you can always ring us and it is a person who is dealing with you on the other end of the phone.

Q309       Mr Baron: Can you reassure us about intelligent automation? What is it actually doing within FOS? Can you provide some assurance that human beings are making the ultimate decisions at the end of the day, rather than some souped-up computer?

Abby Thomas: Yes, I can do both. I can absolutely assure you that a human makes an ombudsman decision. That is set out in FSMA. That is a very clear requirement: that an ombudsman needs to make the final decision. That is one aspect at that end of the scale, but it would be remiss to neglect the opportunities that machine learning or AI could offer to our service as well. We have been doing some work to look at where it could help us.

I will give a couple of practical examples. When a case comes into the service, previously one of the front-door team would need to read that whole case through and label it. For example, they might label it as travel insurance. We have now implemented a form of machine learning that scans the case, spots keywords—for example “overseas injury”—says, “I think this is travel insurance,” and labels the case appropriately. That is live and that is working for us today. We find the accuracy of it is pretty high.

Q310       Mr Baron: You say “pretty high”. I can see plenty of room for error in this. What do you mean by “pretty high”?

Abby Thomas: It is over 80%. First of all, that is higher than when people originally did that work. That is positive. Secondly, it can always be overwritten by the caseworker. When the caseworker receives the case, if they start reading through it and find that it is actually not a travel insurance case, but a different type of insurance policy, they can simply relabel it. That is how we are seeking to use AI: not to substitute for a person, but to provide some guidance that a person can then check. That is the balance between speed and efficiency, but being really confident that we have got it right.

Q311       Mr Baron: It sounds to me as though you have got AI right at the moment. It is a constantly moving target. What you are saying to the Committee is that there is no evidence that the introduction or involvement of AI is in any way delaying cases; if anything, it is helping you.

Abby Thomas: No, absolutely. We would always test to check whether it is achieving the right level of accuracy. As you say, is it helping us to maintain our quality but perhaps increase our pace. With that second check, a person can always overwrite the conclusions that the computer is drawing. It is a helpful assist, not a substitution.

Q312       Mr Baron: In March last year, I questioned you about hybrid working, productivity levels and so forth. You had just about introduced the four days in 10 modus operandi. You said that your productivity levels had not suffered and that, if anything, they were improving. Can you give us an update on that? How is it going? In many respects, your type of work could ideally suit hybrid working.

Abby Thomas: It had been introduced at the point that I attended the Committee. We find it works well for us. We also have colleagues who are now working in regional hubs who actually attend slightly less frequently but have an online check-in every single day with a manager. We are looking at different models. Across the whole service, we measure productivity broadly in terms of how many resolutions we are able to achieve on behalf of our customers against how many caseworkers have been involved in supporting those resolutions.

Mr Baron: Last time you were up to three a week.

Abby Thomas: Yes, three a week in some areas. Our productivity has improved over the last year if—and this is an important caveat—you exclude the fact that about 16,000 resolutions last year were delivered on a bulk basis. No human touched those cases. They were bulk-resolved after one of the respondent businesses went into financial difficulties. Once you take those resolutions out of the mix, our productivity has gone up about 9% this year.

We are very positive about the results of our transformation programme. We think that our productivity should go up by a further 14% next year as some of the initiatives that we put in place this year really bear fruit for the whole 12 months of next year. From a productivity perspective, we think it is improving. We think there is more to do. We think our hybrid working arrangements broadly suit the nature of the work that we do, but we are always keeping an eye on it.

Q313       Dr Coffey: You have been so efficient that you have surplus in your funding operation. Are you still on track to reduce that surplus, or is there a risk it could get even higher?

Abby Thomas: Yes, we do have plans to reduce the surplus. As a not‑for-profit, it is really important that we can cover our costs. In some years the Financial Ombudsman Service historically has not managed to make sure that the costs were slightly lower than the income, which is our desired ratio. I am very happy that we are not in that position and that we are now covering our costs, and a little bit more as well, as you are drawing attention to.

Equally, it is not appropriate for us to sit on more money than we need. That would not be helpful to anyone. The first way that we are seeking to address that is to invest further in our transformation programme. We have ambitious plans for next year to go further in the digital space, in particular, as I have mentioned. The surplus reserves should contribute to that transformation programme.

Secondly, we have looked at and consulted on reducing our case fees as well, because if we become more efficient we should reflect that in our charging, again in light of our not-for-profit status.

Q314       Dr Coffey: You were suggesting that you would go to £650 for the case fee. When do you anticipate being able to announce that you can do that for the next financial year?

Abby Thomas: That is subject to budget confirmation, which I hope is coming up in the next few weeks.

Q315       Dr Coffey: You are planning to use £13.7 million of reserves to fund that transformation. What exactly will it entail, and how will you know that you have spent the money well? I assume it should improve service delivery.

Abby Thomas: Yes, it is absolutely designed to improve service delivery. There are a number of ways. First, we have achieved quite a bit of progress on consumer self-service online this year. Consumer satisfaction has gone up by 20 points for those consumers who have used our website to raise a case to us.

Perhaps even more importantly than that, we have found that when consumers go online to raise a case to us, 30% fewer of those cases require us to go back to the consumer to say, “Could you give us more information?” That is really positive, because it means we are valuing the time of that consumer customer. We are telling them up front exactly what we need, and they are giving it to us so that we can work their cases much more quickly. That is really positive for the consumers and for the businesses on the other side of the complaint as well.

There is quite a bit more we could do in terms of our online journey. I would like to make sure that we get those cases, once raised, to the caseworkers more quickly. I would like to make sure that it is really easy for a consumer to use our website. I would like to give more tools to the caseworkers, to the point that was made a little earlier, who will eventually pick up the case.

For example, today we auto-allocate a case that comes in to an investigator. When I started, an investigator would have to go to a spreadsheet, find a case reference, check if anyone else was working it, check that it was the right kind of case for them, and then request that case to be released to them. That is very lengthy and does not help our consumers. That is now auto-allocated. We would like to extend that to ombudsmen, just to make that process as efficient as possible. There are other innovations like that that we are working on.

Q316       Dr Coffey: It sounds like quite a lot of money—£30 million—to develop auto‑allocation. On staff retention, I know that Mr Baron has just covered a lot of this, but was any consideration given to changes to the salary rise, recognising some of the reserves, to help with retention? Experience must surely be a factor in making sure the cases are covered efficiently and effectively.

Abby Thomas: Yes. As I said earlier, we have experienced a reduction in our attrition rate, which we are very happy about. Although we have been through a lot of change as a service year on year, our employee engagement has remained steady, which we are also very happy about. From a salary perspective, we gave what we consider to be a healthy but also competitive and fair increase to staff last year.

This year, we took a step back and looked at every member of staff, broadly grouped them in professions, and then benchmarked those professions, the skills that they require, the level that they are at, and the region that we were recruiting from, to make sure that we were absolutely competitive in our marketplace. We are a not‑for‑profit and—I will say it openly—we never expect to pay the top rates in the marketplace, but we do want to be healthily above average. The recent work we did on benchmarking demonstrated that that was very often the case.

Q317       Dr Coffey: Do you try to go into the second quartile?

Abby Thomas: Yes, the second quartile, with the top being the higher pay.

Q318       Dr Coffey: Why three months, recognising that, of course, you can be drawn upon if there is a significant systemic failure? You have just over seven at the moment. Why choose three?

Abby Thomas: We are looking at that at the moment. I cannot comment on what will eventually be decided. It would be a matter where we would seek the guidance of the FCA’s oversight committee. Three to five months might feel a little more comfortable for us, so we are just looking at the policy, but I am afraid I cannot confirm at the moment exactly where we will end up as a policy level of reserves.

Dr Coffey: At the moment, your policy is to go to three, but you are suggesting there is the potential it could be reconsidered.

Abby Thomas: Yes, that is right.

Chair: I do not think any colleagues are trying to catch my eye with any further questions, but we have a long list of pieces of data that you have offered to send the Committee. We also have your commitment to comment more on the Sunday Times case, so we will follow up with our Clerks to ensure you have that full list and you can send us that further evidence via letter. If there are no further questions, I am going to declare this session over. Thank you very much.