Channel Islands Financial Ombudsman: Annual Report 2015.

Channel Islands Financial Ombudsman

ANNUAL REPORT 2015

Fairness of outcome... Fairness of process

Channel Islands

Financial Ombudsman (CIFO) PO Box 114

Jersey

Channel Islands JE4 9QG

Jersey: 01534 748610 Guernsey: 01481 722218 International: +44 1534 748610 Facsimile: +44 1534 747629 www.ci-fo.org

R.65/2016

Channel Islands Financial Ombudsman

TABLE OF CONTENTS

Annual Report 2015

INTRODUCTION 3

Submission Letter 3 Message from the Chairman 4 Message from the Principal Ombudsman 5

ORGANISATION 6

Who We Are 6 How We Work 7 How We Determine a Complaint 9 The Process 10

ANNUAL REVIEW 11

2015 Year in Review 11 2015 Operating Statistics  13 Insight Into Our Approach 15

GOVERNANCE 19 APPENDICES 21

OUR MISSION Appendix 1: 2015 Audited Financial Statements (Jersey)

Appendix 2: 2015 Audited Financial Statements (Guernsey) The Channel Islands Financial Ombudsman is independent. We

support public confidence in financial services by resolving  CONTACT Back Cover complaints when things go wrong and pointing out where things

could be improved. We are easy to use and understand, and free

for complainants. We do not take sides. We decide what is fair,

even if that is not popular. We are open about our work. We are

prompt and efficient, and seek to get better at what we do.

Channel Islands Financial Ombudsman

SUBMISSION LETTER MESSAGE FROM CHANNEL ISLANDS FINANCIAL OMBUDSMAN THE CHAIRMAN

David Thomas

Senator Lyndon Farnham

Minister for Economic Development, Tourism, Sport and Culture States of Jersey

Cyril Le Marquand House

St Helier

Jersey

JE4 8UL

Deputy Kevin Stewart

Minister for Commerce and Employment

States of Guernsey The Channel Islands Financial Ombudsman is the  on the basis of what is fair and reasonable in the Raymond Falla House joint operation of statutory bodies established by law  circumstances. Complaints can be referred by

PO Box 459 in the Bailiwick of Guernsey and Bailiwick of Jersey.  residents of the Channel Islands and also customers Longue Rue Our role is to resolve financial services complaints  anywhere in the world served by Channel Islands-

St Martin s when things go wrong and point out opportunities  based financial services providers.

Guernsey  where things could be improved in order to support

GY1 6AF confidence in financial services, both here and  Considerable collective effort was required to turn

internationally. We increase access to justice by  the vision into reality. We are grateful for the hard providing an informal alternative to the courts.  work and support of both States, their officials,

Dear Ministers their consultant, the financial regulators, financial

Before establishing a financial ombudsman, the  industry leaders, community leaders and other

As you know, the Channel Islands Financial Ombudsman is the joint operation  States of Guernsey and States of Jersey consulted  stakeholders. We were pleased to be able to recruit a of the Office of the Financial Services Ombudsman established by law in the  widely. They drew on lessons learned and effective  Principal Ombudsman with significant experience as a Bailiwick of Guernsey and the Office of the Financial Services Ombudsman  approaches developed in more than 50 financial  financial ombudsman in Canada and an international established by law in the Bailiwick of Jersey. ombudsmen around the world. Other financial  reputation.

ombudsmen work within one economy and interact

On behalf of the Directors, I am pleased to submit the report and accounts  with one government. So the Channel Islands  We wish the Principal Ombudsman and his talented for 2015. These take the form of a shared report accompanied by separate  Financial Ombudsman is a global first, working pan- staff well in their work handling the challenges of accounts, which include a division of overall overheads in accordance with the  island within more than one economy and interacting  helping consumers and financial services providers memorandum of understanding between you. with more than one government.  to fair resolution of disputes. Our aim is to be easy to

use and understand. We do not take sides; we decide The report and accounts are submitted under section 1(c) of Schedule 2 of the  The two States decided that the financial ombudsman  what is fair, even if that is not popular. We seek to be Financial Services Ombudsman (Bailiwick of Guernsey) Law 2014 and article  would be independent, but established by statute  open about our work, to be prompt and efficient, and 1(c) of Schedule 2 of the Financial Services Ombudsman (Jersey) Law 2014. with compulsory jurisdiction over financial services  to continue to get better at what we do.

providers and binding authority to resolve complaints

Yours sincerely

David Thomas, Chairman

MESSAGE FROM THE

PRINCIPAL OMBUDSMAN & CHIEF EXECUTIVE

Douglas Melville

Channel Islands Financial Ombudsman WHO WE ARE

Building something new is always an exciting and  We are most fortunate to have the support of a Board  

interesting challenge. This is particularly true when  of Directors that brings a unique combination of  

there is such broad interest in what is being built. financial ombudsman experience, Channel Island  

insight, regulatory experience, and governance and  

The term ombudsman is not always well-known and  oversight.

understood. Neither a regulator nor a consumer  

advocate, we review financial consumer complaints  We have also benefited from the generous support  

with a view to resolving them on a basis that is  of our colleagues in other financial ombudsman  

fair and reasonable in the circumstances. Local  schemes. We are members of the worldwide  The Channel Islands Financial Ombudsman (CIFO)  and staff. The States of Jersey and Guernsey jointly industry and consumers will take some time to fully  International Network of Financial Services  is the trusted independent dispute-resolution  appointed the Board of Directors and the Board understand the nature of our role, and the powerful  Ombudsman Schemes (INFO Network) and have  service for unresolved complaints involving financial  appointed the Principal Ombudsman and Chief benefit it can bring to both parties to a dispute.  been invited to attend, as observers, meetings of the  services provided in or from the Channel Islands of  Executive. The office commenced operation on 16

FIN-NET the European Union network of financial  Jersey, Guernsey, Alderney and Sark. Complaints  November 2015.

This new scheme owes much to the efforts of local  ombudsmen. Many have supported us during this  can be brought by any individual retail consumers,

politicians, departments and staff in both Guernsey  important start-up phase in our development.  microenterprises, and some charities and, given the  The primary role of CIFO is to resolve complaints and Jersey. Their leadership and ongoing support is  In particular, l wish to thank the UK Financial  global nature of the business conducted from the  about financial services provided in or from the critical to the success of this new component of the  Ombudsman Service and the Ombudsman for  international financial centres of Jersey and Guernsey,  Channel Islands. It resolves complaints against financial sector and consumer protection frameworks  Banking Services and Investments in Canada.  these can be located in the Channel Islands or  financial services providers independently, fairly, in the Channel Islands.  anywhere in the world. effectively, promptly, with minimum formality and

To our new team, thank you for taking on the daily  so as to offer a more accessible alternative to court While the Channel Islands are geographically small,  challenge of helping consumers and financial  proceedings. This helps to underpin confidence in the

the scale and sophistication of these international  services providers whose disputes come to us  CIFO is a joint operation of two statutory ombudsman  finance sectors of Jersey and Guernsey, both locally financial centres, the scope and complexity of the  for resolution. In addition to strong analytical and  roles, established in law by the Financial Services  and internationally.

financial services provided, and the international  communication skills, it takes empathy, an open mind,  Ombudsman (Jersey) Law 2014 and the Financial

nature of the customer base makes this a fascinating  and sometimes a tough skin.  Services Ombudsman (Bailiwick of Guernsey) Law

and challenging environment for a financial  2014, jointly operating under the name Channel

ombudsman.  We are very pleased with the response to our new  Islands Financial Ombudsman. CIFO operates from a

mandate and look forward to providing an accessible  shared office in Jersey with the same Board members

We have also benefited from strong and thoughtful  and fair resolution to financial consumer complaints

engagement from a wide range of stakeholders in the  and, by doing so, play our part in supporting the

Channel Islands. Both industry and consumer groups  successful financial sectors in these beautiful

have openly shared their views to help make this new  Channel Islands.

office effective and successful.

Channel Islands Financial Ombudsman HOW WE WORK

OUR STAFF

Our staff with a wide variety of experience and training in financial services, law, finance, dispute resolution and regulatory compliance review and investigate unresolved complaints from clients about financial services providers (FSPs) in or from the Channel Islands.

Left to right: Sophie Watkins, Ross Symes, Douglas Melville , Heather Rushton, Dominic Hind.

If we find the FSP has caused a loss to the consumer, we will work to achieve a settlement  of practice, or codes of conduct. If we believe that the facts of the case do not warrant further that aims to make the consumer whole. We can require that FSPs pay compensation to the  review, we will let the consumer know quickly. We always make sure that we explain our consumer of up to £150,000. We may also determine that compensation for inconvenience  reasons, just as we do when we are determining that compensation is appropriate.

is appropriate in the specific circumstance. In some cases, nonfinancial actions such

as correcting a credit bureau record may be appropriate. If we find the FSP has acted  If we determine that compensation is owed to the consumer, we try to settle the dispute appropriately, we will explain to the customer why we came to that conclusion. through a facilitated settlement between the consumer and FSP that aims to address the

complaint quickly with a fair outcome to both parties.

When we receive a complaint, our team looks at the information provided to make sure

it falls within our remit. For instance, the FSP has to fall within CIFO s remit as set out by  If we are unable to facilitate a settlement but we continue to believe the consumer should be law in both Jersey and Guernsey. This covers things that happened on or after 1 Jan 2010  compensated, we will complete our investigation and make a determination. Our decision, if (if the FSP was in Jersey) or 2 Jul 2013 (if the FSP was in Guernsey/Alderney/Sark). We also  accepted by the consumer, becomes binding upon the FSP.

look for a final answer from the FSP to the consumer, which allows us to start our review

knowing the positions of both parties. CIFO will look at complaints where the consumer  Neither a court nor a regulator, CIFO does not fine or discipline FSPs or individuals working is either unsatisfied with their FSP s final response, or three months have passed since  within the financial sector. While we do not handle matters that have already been through the consumer first complained to their FSP and the complaint remains unresolved. The  a court or an arbitration, if a client does not accept our conclusions, they are free to pursue consumer must raise the complaint to our office within six years of the error that caused  their case through other processes including the legal system, subject to statutory limitation the loss or within two years from when the consumer knew or should have known of the  periods.

problem.

During an investigation, we gather information from both parties and review the facts of the

case. We make decisions based on what s fair to both the consumer and the FSP, taking

into account general principles of good financial services and business practices, the law,

7 regulatory policies and guidance, and any applicable professional body, standards, codes  8

HOW WE DETERMINE IF A COMPLAINT IS WITHIN CIFO S MANDATE

THE PROCESS

FROM ENQUIRY THROUGH TO FINAL DETERMINATION

Is the financial service provider operating  

in or from within Jersey, Guernsey,  NO CIFO will not be able  to investigate

Alderney or Sark?

YES Enquiry Receipt of  Initial review

complaint against CIFO's remit

Is the business of the financial service  CIFO will not be able  

NO

provider subject to CIFO's jurisdiction? to investigate

Information  Complaint

gathering Intake Process

YES

Are you complaining about an event which  NO CIFO will not be able  Mediation Investigation

occurred within CIFO's timeframe? to investigate

YES

Decision

Are you an eligible complainant? CIFO will not be able  Final Determination

NO to investigate

YES

CIFO will investigate further

YEAR IN REVIEW 2015 saw the beginning of the Channel Islands Financial Ombudsman.  2015 The Principal Ombudsman started his duties on 1 June and operations  

commenced on 16 November. The past year is therefore best viewed  in three separate phases:

• 1 January to 1 June

• 1 June to 16 November

• 16 November to 31 December

1 JANUARY TO 1 JUNE

This period was characterised by the key preparations for the  

establishment of the office including the finalisation of secondary  

legislation such as exempt business and funding orders, the  

international recruitment and selection process for the Principal  

Ombudsman, the establishment of financial accounts, and  

engagement of key consulting and outsourced resources to support  

16 NOVEMBER TO 31 DECEMBER the initial operation.

With the commencement of the statutory powers of the mandate and This period involved the Board of Directors, and especially the

opening of the office on 16 November, work began on the review of those Chairman and the Board's consultant, in extensive consultation with

complaints that had been pre-registered with the office in advance of the States of Jersey and States of Guernsey and key stakeholders

the opening date as well as the weekly volume of new enquiries and around finalising the secondary legislation.

complaints. This period largely involved training and development and the ongoing refinement of internal policies and procedures and general

1 JUNE TO 16 NOVEMBER

approaches to address the wide variety of enquiries and complaints

received during the period. While the statistical information for the The Principal Ombudsman arrived In the Channel Islands and

few weeks of operation is understandably limited, we were gratified to commenced his duties on 1 June. The initial priorities were to establish

see that a significant number of complainants were aware of the new the office infrastructure and determine a date for the commencement

mandate and were able to successfully find their way to our office to refer of operation before the end of 2015. A plan to launch the new mandate

their complaints.

and office was set for 16 November.

Initial pre-launch activities during this period involved securing office   space and hiring individuals for the initial key staff roles including a

Manager, Administration and Stakeholder Relations; a Case Handler;  LOOKING FORWARD

and an Administration Officer. While the initial start-up funding of the

preparations for the new mandate were provided by loans from the  In 2016, we will focus on further refining our internal policies and

States of Jersey and States of Guernsey, the ongoing funding of the  procedures and general approaches to the range of complaints we new organisation was set in place with the implementation of levy  encounter. We will also focus on establishing more of the longer- and case fee schemes for both Jersey and Guernsey to enable the  term infrastructure for the organisation such as the development of raising of levies from eligible financial services providers within the  a more robust computerised case management system and greater Channel Islands. functionality and content for the CIFO website. We will continue an

active outreach program to ensure that consumers and industry Also during this period, a series of public consultations were held on a

stakeholders are aware of our mandate and are informed as to how to variety of important issues including:

work most effectively and efficiently with our office.

• Categories of eligible complainants

In 2016 we will be releasing quarterly operating statistics. Future

• Who can be an eligible complainant based on sufficiently-close

annual reports will include a full statistical section that provides relationships with financial services provders

insight into not only the volumes of enquiries and complaints

• A model complaint-handling procedure for financial services providers

being handled by the office, but also the complaint themes and

• The 2015 case fee and levy schemes

how the complaints are being resolved. Following discussion

• The policy on factors to be considered in rejecting complaints

with stakeholders, from the beginning of 2018 the quarterly and

• The policy on delegation and review of rejection decisions

annual operating statistics, as well as any published ombudsman During this period, extensive outreach activities were conducted to  determinations, will include the names of FSPs involved and the

introduce various stakeholders across the Channel Islands to the new  specific Channel Island where the FSP is located. This will provide

mandate. Consumers with complaints were invited to pre-register  a phase-in period during which the internal complaint handling   11 their complaints with the office so that work on them could begin  processes of financial services providers can mature.  12

once the office became operational.

41

OPERATING CIFO commenced operation on 16 November  Enquiries STATISTICS leaving only about six weeks before the

2015 end oweek period, work commenced on the f the 2015 fiscal year. During this six-

pre-registered complaints as well as the new  

complaints brought to the office between 16  Complaints

November and 31 December. By 31 December,

32  55

no case files had reached the point where a

published decision had been made nor where

an investigation of the merits of the complaint

was completed. Some of the complaints had

been reviewed and were found to be outside  Pre-Registered Complaints Received

CIFO s remit. Those complaints that were

rejected as out of mandate are recorded  16th Nov 2015 16th Nov - 31st Dec 2015 below along with the reason they were found

to be out of mandate.

Those case files that were not closed as out  

of mandate during this period were carried  Complaints Closed as Out of Mandate (OOM) forward to 2016 and will be reported in the

quarterly statistics released in 2016 and in the

2016 annual report to be published in 2017.

22

Closure Reasons

14  8 2 OOM: Date OOM: Business OOM: Foreign FSP

Case File Inventory Carried Forward to 2016

65

SOME INSIGHT INTO OUR APPROACH THE EXAMPLE OF INVESTMENT SUITABILITY COMPLAINTS

With the commencement of CIFO s operations so close to year-end, there were not yet case studies to be shared in this annual report. Such case studies are a valuable means of communicating the types of complaints that arise and the general approaches the office is minded to take in such circumstances. One of the possible complaint themes we expect to see in the Channel Islands is similar to that seen in most mature financial services markets with a financial ombudsman scheme, complaints about the suitability of investment advice.

When an investor engages with a financial adviser, it  starts an important process and relationship which  shares an investor s most private information and  deals with their personal assets. When something  goes wrong with that relationship, and usually in  conjunction with investment losses on individual  investments or the portfolio as a whole, complaints  are sometimes raised that investment losses  occurred as a result of unsuitable investment advice.  The following gives an indication of the general  approach that CIFO is minded to take in reviewing this  type of complaint.

It bears clarification at the outset that CIFO does

not exist to insulate investors from market risk they knowingly took with their investments. Investment losses are a normal part of financial markets and the risk-return trade-off. Not surprisingly, complaints rarely emerge when investments, suitable or otherwise, are generating positive investment returns. Investors are not necessarily owed compensation for investment losses merely because they complain. The review of the complaint starts with the process that determined the suitability of the investment recommendations.

The financial adviser is the individual in the

relationship that has the role of identifying the

relevant information to determine an investor s

personal circumstances, investment objectives,

investment experience, risk tolerance, and time

horizon. This role is about getting to know your client

(KYC) and is referred to as the KYC process. The

financial adviser is also expected to know the product being recommended to the investor, so that the

15 financial adviser can make a recommendation of an investment that matches the personal circumstances

of the investor as identified in the KYC process. Finally, the execution of the investment decision needs to proceed as expected to purchase a suitable investment.

This can be described as a chain of responsibilities held by the investment adviser. The objective reality of the investor s personal circumstances should be reflected in the information gathered during the KYC process. The process is not a signed KYC form in the investor s file, but rather the information gathered from a discussion with the investor that sets out the personal characteristics of the investor noted above and forms the basis for identifying and recommending suitable investment options. The investment adviser then recommends an investment that is consistent with the KYC information. A low-risk inexperienced investor with a short time horizon is not likely to be suitably invested in a complex, medium to high risk, illiquid, and long-term investment product. Such

a visible disconnect between the investor and the investment recommended would need to have been part of the discussion with the investor and would

need to have been well-documented. These types of disconnects between the personal circumstances of an investor, the KYC information gathered, and the nature of the investment recommended form the basis of most complaints about investment suitability.

In order to arrive at a determination of what would be fair and resonable in the circumstances, we look at the relevant law, any codes of practice

or other regulatory guidance from the Financial Services Commissions, any other relevant regulatory instruments, and relevant industry good practice at the time.

Where we determine that an unsuitable investment recommendation has been made, we seek to put the investor back in the position they would have been in had the unsuitable investment not occurred. Depending on the circumstances, this can be a simple analysis or a tremendously complicated

one depending on the nature of the investment or investments and the time periods involved. We may decide that an investor should be able to return

the investment or be compensated for the losses they suffered due to an unsuitable investment recommendation. If on the other hand an investment has been found to be suitable, the fact that an investor lost money does not make it a valid complaint and we would say that to the investor.

In the case of losses due to an unsuitable investment recommendation, we would consider what the investor lost as well as what would have happened had the unsuitable recommendation not been made. Sometimes this means putting the investor in the position they were in before in a different investment. Sometimes, especially in situations involving the investment of cash, it involves looking at what would have happened if the investment had been made in a suitable investment product.

16

FOR EXAMPLE:

An investor loses £20,000 in an unsuitable investment. Depending on the  different possibilities, the compensation warranted can change:

If the amount invested came from another investment,  it may be fair and reasonable to determine how the  investment would have performed in the same time  

period if it had been left in that original investment. If the  original investment would have grown by £2,000 during the  period, then it would take £22,000 to return the investor  

to the position they would have been in if the unsuitable  recommendation had not been made.

If the amount invested was in cash, then it may be fair and  reasonable to determine how the investment would have  performed in the same time period if it had been invested  in something suitable for the risk profile and objectives  

of the investor. In the absence of a specific investment  on which to base the analysis, a benchmark index of a  suitable risk profile offers an objective basis to determine  compensation.  

If the benchmark index of a suitable risk profile grew by  £2,000 during the period, then again, it would take £22,000  to return the investor to the position they would have been  in if the unsuitable recommendation had not been made.  However, if the markets had fallen and the benchmark  index of a suitable risk profile had fallen by £18,000 during  the period, then we may conclude that the investor would  have lost £18,000 anyway and therefore only lost £2,000  as a result of the unsuitable investment recommendation.  If the benchmark index of a suitable risk profile had fallen  £21,000 during the period, then we may conclude that the  investor would have lost £21,000 anyway and therefore  they did not incur any loss as a result of being unsuitably  invested. In fact, the investor is better off by £1,000. We  would not decide to compensate in this case.

Future case studies that CIFO will publish on its website  

and in future annual reports will likely illustrate different  18

17 scenarios in this complicated area of financial complaints.

GOVERNANCE THE FOUR MEMBERS OF THE BOARD ARE: ONE STEP AHEAD

The Board of Directors is part-time and non-executive, with four members. It is independent of the States of Jersey and States of Guernsey and does not get involved in deciding cases, nor the day-to-day management of CIFO. Its key roles are to:

• Appoint the ombudsman and help safeguard his/her independence;

• Help ensure that that CIFO has adequate resources to handle its work;

• Oversee the efficiency and effectiveness of CIFO; and

• Advise on the strategic direction of CIFO.

Left to right: John Mills, Deborah Guillou, David Thomas & John Curran.

David Thomas (chairman) is also a  Deborah Guillou is a qualified Attendance at Board Meetings member of the Regulatory Board  accountant and chief executive

of the worldwide Association of  of the Medical Specialist Group

Chartered Certified Accountants.  in Guernsey. She was formerly: Regular in-person meetings of the Board of Directors were scheduled throughout 2015. Additional meetings

He was formerly: a lawyer in private  head of Generali International; were held by conference call as required. All directors were in attendance for every one of the 18 meetings of

practice and a member of the  chief financial officer of Generali the Board of Directors held in 2015

. Council of the Law Society (England  Worldwide Insurance; a senior and Wales); Banking Ombudsman  finance manager at Investec

DIRECTORS' ATTENDANCE AT 2015 BOARD MEETINGS (UK); principal ombudsman with  Asset Management; finance

the Financial Ombudsman Service  director at Guernsey Electricity;

(UK); and a director of the Legal  and an accountant with Fairbairn No. of meetings No. of meetings No. of meetings Attendance Ombudsman (England and Wales).  International.

held attended absent rate He has advised on financial

consumer protection in more than

David Thomas (Chair) 18 18 0 100% 30 countries.

John Curran 18 18 0 100%

Debbie Guillou 18 18 0 100% John Mills CBE was formerly a  John Curran is chairman of

senior civil servant in the UK and  Guernsey Mind (the mental health John Mills 18 18 0 100% in Jersey. He was lately a board  charity). He was formerly: the

member of the Jersey Financial  chief executive of the Channel

Services Commission and vice- Islands Competition & Regulatory

chairman of the Port of London  Authorities; director general of DIRECTOR REMUNERATION 2015 Authority. He is currently deputy  the Office of Utility Regulation

chairman of Ports of Jersey Ltd,  (Guernsey); and manager of

and undertakes several honorary  the Operations Division of the

roles in the Island including  Commission for Communications David Thomas (Chair) £36,000 chairing the Investment Committee  Regulation (Ireland).

John Curran £6,000 of the Public Employees Pension

Scheme and sitting as a Tax

Debbie Guillou £8,250 Commissioner of Appeal.

John Mills £6,000

APPENDIX 1 2015 AUDITED FINANCIAL STATEMENTS

Office of the Financial Services Ombudsman (Jersey)

APPENDIX 2 2015 AUDITED FINANCIAL STATEMENTS

Office of the Financial Services Ombudsman (Guernsey)

Fairness of outcome and fairness of process...

CONTACT AUDITORS OUTSOURCE SUPPLIER

(bookkeeping and industry levies)

Channel Islands Financial Ombudsman (CIFO)

PO Box 114

Jersey

Channel Islands

JE4 9QG

Jersey: 01534 748610 Guernsey: 01481 722218 International: +44 1534 748610 Facsimile: +44 1534 747629 www.ci-fo.org

KPMG Channel Islands Jersey Office

37 Esplanade

St Helier

Jersey

Channel Islands

JE4 8WQ

Jersey: 01534 888891 www.kpmg.com/channelislands

Grant Thornton Limited Kensington Chambers 46/50 Kensington Place St Helier

Jersey

Channel Islands

JE1 1ET

Jersey: 01534 885885 www.gt-ci.com

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