The letter of the law

letter of the law

The Financial Ombudsman acts like a craven coward when it comes to dealing with the big banks. Give it an individual to pursue, and it’s transformed into a valiant guardian of the rule of law.

As an example of what I mean, I’ll tell you about John Calland. He used to be an Independent Financial Adviser. He’s retired now, and his firm has stopped trading.

When he was working he gave some poor advice. He told clients to take out private pensions instead of joining their employers’ schemes. The Ombudsman has decided that he must be punished.

He has been told to make good the losses of his clients.  He must do this personally because his firm no longer exists.

He has made things worse for himself by refusing to accept the Ombudsman’s ruling, and fighting it through the courts. Each one has upheld the Ombudsman’s decision. His next move is to go to the European Court of Human Rights. It won’t end well.

No doubt this is all as it should be. What bothers me is the contrast with the way that a bank would be treated in the same circumstances.

First of all, none of Mr Calland’s customers have complained to him. They only contacted the Ombudsman after it had sent them partly-completed complaints forms. Wouldn’t it be good if banks were called to account in this way?

If you try to get the Ombudsman to punish your bank, you will be treated to a lecture on the impartiality of the service. You will be left in no doubt that the Ombudsman will not act as an advocate for you. Yet here it is, soliciting complaints.

Then there’s the question of the punishment. If a bank were guilty of this sort of mis-selling, it would be asked to stop doing it as soon as it conveniently could. That would usually be the end of the matter.

If the Ombudsman were under political pressure to ‘get tough’, it might impose a fine of a fraction of a thousandth of the bank’s annual profit.

If it thought that customers needed to be compensated, it would leave it to the bank to decide who should be paid out, how much, and when.

So, one malefactor is given a gentle telling-off, the other faces ruin. Not very fair and equitable, is it?

I know the reason that the Ombudsman would give to explain the apparent inconsistencies. An Independent Financial Adviser is in a professional relationship with their client. The client is entitled to act on any advice without making independent inquiry. The adviser is liable for any loss to the client that bad advice might cause.

On the other hand, when a bank gives you financial advice, it isn’t a Financial Adviser. This is true even though the bank behaves as if it is, and does nothing to avoid giving that impression. It’s even more convincing when a bank insists that you follow its advice, or else.

It’s because of this distinction that banks appear to have no liability for any damage that they may cause. Ridiculous, isn’t it?

After all, if it looks like a financial adviser, walks like a financial adviser, and talks like a financial adviser, it’s reasonable to think that it’s probably a financial adviser. Because the banks know this, it’s their moral duty to disabuse you, just like the TV ads which begin: ‘I’m not a dentist but…’.

Other poor mortals who don’t enjoy the bankers’ special protection have just such a duty. The Ombudsman’s insistence on applying the letter of the regulations, but remaining blind to their spirit, lets banks off the hook yet again.

The moral is: if you work for a big bank, you’re as safe as houses; if you’re on your own, you’re on your own.

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2 thoughts on “The letter of the law

  1. Caroline Barwick

    Another great post and I can see exactly the same happening to my broker over my miss sold mortgage yet, without shoddy, sales driven underwriting from HBOS, the mortgage would not have existed. However, I can not see HBOS admitting to their part in it and the FOS have already made it clear “The bank could not have been expected to know the information about the purchase price and date was untrue”.

    1. banxbane Post author

      Thanks, Caroline. It’s no coincidence that bankers dominate the board of the FCA. They obviously see everything from the point of view of the big banks. Sir Richard Lambert is asking for opinions on how to change this. You’ve got till 7th March to tell him what you think here:


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