Turmoil at the UK financial ombudsman deepened on Tuesday after its chair called for a “radical” shake-up of its rules and announced plans to step down only days after the unexpected departure of its chief executive.
Baroness Zahida Manzoor, chair of the Financial Ombudsman Service (FOS), told parliament’s Treasury select committee that the agency was “certainly not rudderless”, even as she revealed plans to leave when her second three-year term ends at the start of August — and said it would be up to her successor to find a new CEO.
Asked repeatedly by MPs why Abby Thomas unexpectedly quit as CEO and chief ombudsman last week, Baroness Manzoor refused to give details of what caused the departure other than to say there was “a mutual agreement” on Thomas’s decision to leave.
The upheaval underlines how the usually low-key body — which deals with consumer complaints against the financial sector — has come under scrutiny for its role in the multibillion-pound scandal over car loans amid fears it is deterring investors in the UK.
Meg Hillier, chair of the Treasury select committee, has sent letters to the ombudsman’s chair and to Financial Conduct Authority chair Ashley Alder, asking for more detail on Thomas’s departure, and whether the former CEO had received a severance payment. The ombudsman is independent but the FCA appoints its board and oversees its operations.
The service has been thrust into the spotlight as prime minister Sir Keir Starmer steps up pressure on UK regulators to ease the burden of bureaucracy in support of the government’s push to revive the stalling British economy.
Executives in the City of London have criticised the ombudsman for taking a consumer-friendly approach to compensation claims for alleged mis-selling of car finance — a scandal that HSBC analysts have estimated could end up costing banks £44bn.
Baroness Manzoor told MPs that legislation may be needed to make some of the changes she believed were necessary to fix flaws in the UK’s system for compensating customers in the financial sector.
“It depends how radical we want to be . . . but let’s do something radical guys, because if we don’t — what is the point?” she said, adding that the UK’s consumer credit legislation was “very complicated and outdated and I think that is something that parliament should look at”.
John Grady, a Labour MP on the committee, said: “Is this just a mess that we need start again on?”
He said: “If I was an investor in the UK I would say I don’t know where to start because I might well in good faith proceed in a certain way and find myself facing vast claims in the future,” adding that the process was also confusing for consumers.
But consumer groups have defended the service, saying it provides critical protection for consumers against abuse by financial services companies. It rules on more than 200,000 complaints a year after they are rejected by banks and other firms, and can award up to £430,000 per claim.
The ombudsman launched a review of the redress process with the FCA last year — responding to a call by chancellor Rachel Reeves — and it is due to present initial proposals by June.
Baroness Manzoor called for greater clarity in UK consumer finance regulation. She said businesses often complained the country’s principle-based regulatory system caused them “difficulty because they don’t have clarity — they are looking for the tramlines” of what was allowed.
Defending the ombudsman’s decision to start charging claims management companies that brought almost half of all complaints to the ombudsman last year, Baroness Manzoor said this was designed to improve “fairness” of its charging policy.
It previously only charged firms that were the subject of complaints. But Baroness Manzoor said that while some claims management companies “have very good behaviours, there are many more that sadly have very poor behaviours”, such as submitting poorly researched cases or overwhelming small businesses with thousands of flaky claims.
One person briefed on the matter said Thomas’s departure stemmed from her reluctance to introduce charges for claims management companies. But the ombudsman’s chair told MPs “the final decision was unanimous”.
