Financial ombudsman

Family VIII · Regulation

Not to be confused with investor compensation scheme, fca regulated broker, client money protection.

Financial ombudsman is a generic term for an independent dispute-resolution service that handles complaints from retail customers against financial firms. It is usually established or recognised by statute, funded by levies on the firms within its jurisdiction, and free to the complainant. Its decisions are commonly binding on the firm but not on the complainant, who remains free to pursue the matter in court.^[1]

How the process works

A complaint normally must be made to the firm first, and the firm is given a defined period to respond before the ombudsman will accept the case. That period, the time limit for referring a complaint onward, and the maximum award the ombudsman can order all vary by jurisdiction and by scheme.

Where the ombudsman upholds a complaint, the usual remedy is a monetary award, a correction of the account or record, or an instruction to take a specified action. Awards are commonly capped; the cap is set by the scheme's rules and is revised from time to time.

Worked example

Award against a cap

Loss claimedCustomer's stated loss12,400

Loss upheldAmount the ombudsman finds justified9,800

Scheme capMaximum award permitted8,000

Award orderedLower of upheld loss and cap8,000

The shortfall above the cap is not recoverable through the scheme; the complainant may still have a right of action in court for the balance, depending on the jurisdiction.

Scope and limits

Coverage is defined by the scheme's rules. Some schemes cover banks, insurers, brokers and advisers; others cover only a subset. Products such as certain professional or corporate accounts may fall outside the scheme entirely.

Decisions are typically published in anonymised form.
Firms usually pay a case fee, which is one reason many resolve complaints before the ombudsman stage.
The service is not a regulator and does not supervise firms or set capital or conduct rules.

Often confused with

investor compensation scheme: An investor compensation scheme is a statutory or industry-funded arrangement that reimburses eligible clients of a failed or insolvent investment firm up to a specified limit, subject to national rules on coverage, eligibility and claim procedure.
fca regulated broker: An FCA regulated broker is a firm authorised or registered by the United Kingdom's Financial Conduct Authority to carry out specified investment business, and therefore subject to the FCA's conduct, capital and reporting requirements.
client money protection: Client money protection is the set of regulatory rules requiring a firm to hold customer funds separately from its own money, so that client balances remain identifiable and returnable if the firm fails.

References

↑ Financial Conduct Authority, permanent rules restricting the sale of contracts for difference and CFD-like options to retail clients, in force since 2019. UK retail clients. The FCA extended the restrictions to closely similar products.

Family: VIII · Regulation · Index A–Z