Legal Ombudsman reform: What changes are being made?November 2022
In February 2022, the Legal Ombudsman (“LeO”) undertook a thorough review of its Scheme Rules with the aim of improving the customer experience and tackling a vast backlog of complaints. On 28 October 2022, the LeO confirmed that its review had concluded with amended rules due to come into force on 1 April 2023.
The reforms to the Scheme Rules focus on reducing time limits, the Ombudsman’s discretion to discontinue or dismiss a complaint and the escalation of cases to an Ombudsman for decision. We outline below the key changes and comment on the potential implications.
Scheme Rule 4: Time Limits
The boldest of the changes being made is the amendment to the time period within which one must refer a complaint to the LeO. Currently that time limit is: (i) six years from the date of the act or omission being complained of; or (ii) three years from when the complainant should have realised there was cause for a complaint, whichever is greater.
The new position under Scheme Rule 4 is that complaints will not be entertained if brought later than: (i) one year from the date of the act or omission being complained about; or (ii) one year from the date when the complainant should have realised there was a cause for complaint, whichever is greater.
It is important to note that Rule 4.7 remains unamended; this gives the Ombudsman the discretionary power to consider complaints outside the scope of the new time periods when it is fair and reasonable to do so. Guidance has not yet been published on how the Ombudsman will exercise this discretion and one suspects it never will be.
Scheme Rule 5.7: Ombudsman discretion to dismiss or continue a complaint
Three key changes are being implemented to Rule 5.7. Rule 5.7 (a) – (n) currently governs the Ombudsman’s discretion to discontinue or dismiss a complaint.
The first change is in relation to Rule 5.7(b): “the complainant has not suffered (and is unlikely to suffer) financial loss, distress, inconvenience or other detriment”. The word ‘significant’ is being introduced allowing the Ombudsman to consider whether it is a proportionate use of its finite resources to investigate a complaint where the detriment is not significant. If it does not feel that the detriment is sufficiently significant, it can dismiss the complaint; this is a major departure from the current scheme, where a complaint can only be dismissed under this rule if there has been no loss or detriment at all.
The second amendment is to introduce Rule 5.7(p) which is almost the opposite to the rule above. This allows the Ombudsman to consider whether a case should be dismissed on the basis that its complexity and size is such that it would be disproportionate for it to be investigated via the LeO route. The LeO notes that this amendment would only apply in very limited circumstances.
Thirdly, Rule 5.7(q) is being introduced to prevent new issues being added to an ongoing investigation when the details of the additional issue were known to the complainant at the time of lodging the complaint.
Scheme Rule 5.19: Escalation of cases to an Ombudsman for decision
Rule 5.19(c) is being revised to restrict access to an Ombudsman following a finding by an Investigator. The current situation allows the parties to seek a referral up to an Ombudsman almost as of right. In an attempt to direct resources more appropriately, this new rule permits an Ombudsman to conclude that a final decision is not needed on a case if no substantive issues have been raised in response to the investigator’s initial findings or remedy.
The Ombudsman retains the discretionary power to recommend a case for final decision, irrespective of the responses to the investigator’s findings, where necessary. For example: (i) where there are vulnerability issues; (ii) where a final decision is needed in order to claim against the firm’s run off insurance; or (iii) if the decision is needed for enforcement purposes.
These new rules seek to strike a balance between the need for parties to have a remedy on the one hand and the finite resources of a struggling institution on the other. However, whether the rule changes will enable the LeO to better deliver an efficient and effective Scheme remains to be seen, and there is bound to be some controversy around the inevitable restrictions that will now apply to some complaints, effectively denying some complainants access to justice.
Nevertheless, these changes will doubtless be welcomed by firms, as we anticipate that they will be successful in reducing the number of complaints, and therefore the burden that currently exists on firms.
However, much will depend upon the LeO’s use of their discretion, and we will wait to see how that is exercised going forward.
From an administrative perspective, firms should look to amend their template client care letters to reflect the changes to the time limits, in time for the start of the new rules on 1 April 2023. This should include any information published on a firm’s website too. Firms should also ensure that any further guidance that is published by the LeO in relation to these changes is picked up and observed. We will publish further guidance and commentary if and when further information becomes available.Download PDF