The Channel Islands Financial Ombudsman

The Channel Island Financial Ombudsman (CIFO) is designed to offer an alternative to court by which complaints against relevant financial services businesses (FSBs) can be resolved quickly, informally and fairly. The CIFO has the power to make awards up to a maximum of £150,000.

Many fiduciaries will be aware of the statutory carve-outs that limit the CIFO’s jurisdiction in respect of the majority of their business streams. They may, therefore, be understandably inclined towards the view that the CIFO is of little relevance to them. However, for those administering a retirement annuity trust scheme (RATS), this may not be the end of the story from the CIFO’s perspective.

By way of a recent example, we are aware of a RATS member having complained to the CIFO about the administration of the RATS by its trustee. The RATS was governed by Guernsey law and the trust instrument included provisions that discharged and indemnified the trustee’s liability to the maximum extent permitted by law.

CIFO awards are not subject to appeal and the avenue for challenge is judicial review.

Even a prima facie eligible complaint to the CIFO may be rejected if there are compelling reasons why it would be inappropriate for the CIFO to handle the matter. Such reasons include there being a more appropriate forum than the CIFO. More specifically, that may require consideration of, first, whether it is impossible for the CIFO to determine a complaint without deciding a “significant doubtful point of law” and, secondly, whether the need for a court’s involvement outweighs the benefits of the CIFO process.

In the context of the relatively low value of CIFO awards, any fiduciary would need to carefully weigh the merits of a challenge against the costs of the process.

The trustee in the recent example, again understandably, contended that a CIFO monetary award would amount to a determination that the trustee could not rely upon a clause that (in the absence of the trustee’s fraud, wilful misconduct or gross negligence) lawfully excused it from liability.  Similarly, the trustee explained that for any award to have a meaningful compensatory effect, the trustee would also need to be prevented from relying upon its lawful indemnity- which would otherwise result in a circularity whereby the trustee’s liability fell to be settled from the assets of the RATS. In each of the circumstances, the trustee argued that the CIFO was not properly placed to determine the complaint and should reject it.

The CIFO decided that it was an eligible complaint and that it could be dealt with on the basis of what was “fair and reasonable”.

The CIFO ultimately upheld the complaint without any finding of fraud, gross negligence or wilful misconduct against the trustee. A decision of this nature, which effectively over-reaches the trust instrument of a RATS, may not be consistent with the decision that a court could properly reach in identical circumstances.

CIFO awards are not subject to appeal and the avenue for challenge is judicial review. Judicial review is a review of the process by which a public body makes an administrative decision in order to determine whether the decision was lawful. The remedy is a discretionary one and is not frequently employed.

Whilst a decision of the sort outlined above may be liable to judicial review, in the context of the relatively low value of CIFO awards, any fiduciary would need to carefully weigh the merits of a challenge against the costs of the process – including the possibility of an adverse costs order if the judicial review failed. The hope is that the CIFO will not seek to push the margins of its jurisdiction in ways that impact upon the clear and certain terms of the islands’ trust laws. Decisions of this nature may, though, cause even the hopeful to pause for thought