Ombudsman worried about inability of firms to pay awards

Brendan Burgess

From the Annual Report
Inability of providers to pay Ombudsman’s awards
Many complaints upheld by the Ombudsman related to investment advice, misrepresentation or
poor investment performance and involve large amounts of money.
During 2009 the Ombudsman noticed that some providers went into liquidation or out of
business. In two instances the compensation awarded is being paid over a period of time in instalments
as the providers’ professional indemnity insurance would not pay up the amounts in question –
¤50,000 and ¤15,000 respectively. In two other instances where High Court appeals went in the
Ombudsman’s favour the provider concerned stated that it may not be able to pay the ¤60,000
awarded as it had no funds. Where large awards had been made and are under appeal to the High
Court – ¤500,000, ¤700,000 and ¤100,000 - the professional indemnity insurer of the providers has
indicated that it will not be willing to pay up that award if the appeal is unsuccessful. It was also not
possible to enforce other awards or deal with some complaints against another provider as registered
post was returned undelivered because the offices were closed - in one case an award of ¤63,000 was
involved. For some intermediaries a renewal of their professional indemnity insurance was proving
problematic. While enforcement action was initiated in particular instances, the prospects of payment
recovery are slight and additional legal costs are incurred by the Ombudsman.
The fact that the consumer may not get compensation or any other monetary remedy directed
by the Ombudsman is a problem. Compensation or mitigation awards made would be worthless and
consumers may not be protected at all. These concerns have been brought to the attention of the
Financial Regulator and the Department of Finance. The establishment of an investor compensation
fund funded by the financial services sector would address these concerns. The current Investor
Compensation Company Limited (ICCL) does not provide compensation for losses arising from bad
investment advice, poor investment management or misrepresentation but it could be amended to
provide for awards being honoured. This may lead to increased levies on the industry but is preferable
to the alternative of having no protection for vulnerable people.