About ombudsmen

Methods of Establishment

Ombudsman schemes dealing with complaints against private-sector bodies are typically established in one of three ways:

  • Statutory:  Established by statute, which gives them a compulsory jurisdiction over specified types of (usually regulated) businesses (for example, the Financial Ombudsman Service and the Legal Ombudsman)
  • Underpinned by statute:  Specified types of businesses are required to be covered by an ombudsman scheme that meets specified minimum criteria (for example, the Property Ombudsman and Ombudsman Services: Energy)
  • Voluntary:  Established voluntarily (sometimes after government/consumer pressure) by a particular trade association, but with independent governance (for example, the Removals Industry Ombudsman)

Statutory ombudsman schemes

With the ‘statutory’ model as employed in recent times, typically:

  • An independent board of non-executive directors is appointed by a statutory regulator, to oversee the strategy, efficiency and effectiveness of the ombudsman scheme
  • The directors are all required to represent the public interest, and only a minority must be connected with businesses in the sector involved
  • The budget is proposed by the chief ombudsman, adopted by the independent board and approved by the statutory regulator
  • The chief ombudsman and any other ombudsmen are appointed by the non-executive directors, on terms that secure the independence of the ombudsmen
  • The independent board helps safeguard the independence of the ombudsmen, and helps ensure there are adequate resources to handle the work
  • The ombudsmen are independent decision-makers (as a judge would be) and the chief ombudsman acts as chief executive of the organisation
  • The independent board is not involved in deciding cases, nor in the day-to-day management of the ombudsman scheme

Typically, the statute provides a framework of powers, enabling the regulator and/or the ombudsman scheme (with the approval of the regulator) to make detailed rules about jurisdiction/process/powers, so that these can be kept up-to-date without requiring primary legislation.

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Ombudsman schemes underpinned by statute

With the ‘underpinned by statute’ model, governance and the provisions for making rules about jurisdiction/process/powers follow the ‘voluntary’ model described below – adapted so far as necessary to comply with the statutory minimum criteria.

The statutory provisions often include a requirement that the ombudsman scheme must be approved by the statutory regulator in the relevant sector, which ensures that the ombudsman scheme complies with the statutory minimum criteria. 

The regulator may approve a single ombudsman scheme.  But, in some cases, regulators have approved two or more ‘competitive’ ombudsman schemes (each meeting the statutory criteria) with businesses choosing which ombudsman scheme to join.

If there are ‘competing’ ombudsmen in a particular sector, this can create confusion for the public – who are unsure which business is covered by which ombudsman scheme.  And public confidence is less where it is the business that has the choice of which ombudsman scheme to use.

This raises the appearance, and the risk, of businesses attempting to exercise an influence over the ombudsman schemes – by favouring the one that they like best and/or by threatening to undermine one scheme financially by threatening to move to another.

For these reasons, we do not favour the ‘competitive’ model if it is the business that is able to choose.  The ‘competitive’ model is said to reduce costs, but costs can be adequately controlled by transparency and regulatory scrutiny.

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Voluntary ombudsman schemes

With the ‘voluntary’ model, typically:

  • An independent board/council of non-executive directors is appointed, to oversee the strategy and efficiency of the ombudsman scheme
  • The directors may represent the public/consumer/business interests, but only a minority must represent business interests
  • There is also a trade board/council, comprising only business members, which may only have a consultative role or which may decide how the total budget is apportioned amongst members
  • The budget is proposed by the chief ombudsman and adopted by the independent board.  It may or may not have to be approved by the trade board/council

As with the statutory model:

  • One or more ombudsmen are appointed by the non-executive directors, on terms that secure the independence of the ombudsmen
  • The independent board helps safeguard the independence of the ombudsman/ombudsmen, and helps ensure there are adequate resources to handle the work
  • The ombudsmen are independent decision-makers (as a judge would be) and the chief ombudsman acts as chief executive of the organisation
  • The independent board is not involved in deciding cases, nor in the day-to-day management of the ombudsman scheme

Typically, the rules about jurisdiction/process/powers are set in the constitution and rules of the ombudsman scheme, possibly supplemented by an industry code of practice

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