Financial ombudsman role under review

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The Independent Online

The Financial Services Authority has privately conceded that its consumer watchdog system is flawed and it is considering ways to change it.

The problems lie with the financial ombudsman system, which is meant to deal with complaints against financial services companies and rule on whether they have been trea-ted fairly.

Banks and building societies believe the ombudsman's decisions have strayed into more general territory, forcing them into such wide-ranging changes as re-pricing their entire mortgage book.

Companies also object to the rules surrounding appeals against the ombudsman's decision, because they have to be directed to the same body.

The situation has caused so much resentment that the ombudsman now faces a judicial review over one of its decisions. Decisions by the ombudsman which particularly angered financial institutions were over mortgage rates and rules surrounding tax exempt special savings accounts (Tessas).

The watchdog was widely criticised for forbidding companies from offering better deals to customers with individual savings than to those with Tessas. Norwich & Peterborough building society disagrees so strongly that it has started judicial review proceedings for this autumn.

The FSA is discussing ways to oversee the process, so that providers are given more guidance about whether they have to apply individual decisions to their entire customer base.

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