Investors sent a record number of complaints flooding in last year, yet the banking ombudsman is struggling to make its voice heard by the Swiss financial centre.This content was published on July 7, 2010 - 08:36
The 14 per cent increase in gripes to 4,757 was dominated by the sale and subsequent failure of products linked to failed banks Lehman Brothers and Kaupthing. But a quarter of complaints sent on to banks were met with a brick wall.
Banking ombudsman Hanspeter Häni told a conference in Zurich on Tuesday that most banks had listened to his arguments. But the refusal of a few had raised the rejection rate of his office’s requests for compensation to 27 per cent last year from just five per cent in 2008.
“The ombudsman is not a judge and can just try to convince the bank with arguments to cover the losses or cover more than it wanted to,” he told swissinfo.ch.
“It was only a very few banks that were not ready to accept our arguments and pay the sum we thought was appropriate. I just hope it’s a one-off phenomenon that will not be repeated.”
The main cause for stonewalling was a refusal of a minority of banks to deal with individual complaints. These banks “enforced across-the-board approaches” based on criteria set by them that did not take into account individual circumstances or just blamed market conditions, the ombudsman said.
Over the last two years the ombudsman office has received some 3,000 complaints concerning Lehman Brothers, Iceland’s Kaupthing Bank and so-called absolute return products from a total of just under 9,000.
In most cases in which the ombudsman thought there was a case to answer, the bank stood accused of selling products that were too risky or pressurising clients into accepting investments.
“We had clear indications that certain banks had a hard-sell policy, no question about it,” Häni said. “We had clients who told us they were first contacted by a service centre who advised them to go to an advisor who then sold them the product.”
The Swiss Consumer Protection Association believes that many disgruntled banking clients fail to find satisfaction with the ombudsman because it does not have enough teeth to force banks to amend their errors.
The association’s business leader Sara Stalder also complained that while the sector’s regulator, the Swiss Financial Market Supervisory Authority (Finma), was ready to compel banks to take fewer risks, it has not so far addressed how they sell investments to clients.
“Finma must start looking into the way banks present and market some products as no risk when the real risk is actually quite high,” she told swissinfo.ch. “Most banks put pressure on people to sign quickly and are not transparent enough with their information.”
The Swiss Bankers Association would not comment on reports of intransigence by banks on compensating mistakes because it said every complaint would have different circumstances. However, some banks – notably Credit Suisse – have been offering their own compensation packages to groups of dissatisfied customers.
Investors that fail to find satisfaction through the ombudsman or directly from their bank face the daunting and highly expensive option of taking private legal action.
A group of around 50 Credit Suisse clients who were sold failed Lehman Brothers products are currently pursuing their claim through the courts. These were customers who had failed to meet the criteria of a Credit Suisse package that awarded 1,700 investors SFr50 million ($47 million) in compensation last year.
However, many people simply do not have the appetite for such a gruelling experience, according to Häni. “If you have a person who has little risk tolerance for their investments, they might not want to take on the risk of going to the courts,” he said.
And the ombudsman added that many people who lost money in complicated financial products only had themselves to blame. Of the 2,849 written complaints the ombudsman received last year, the banks were found to have no case to answer in 42 per cent of cases.
“These products have the right to exists and it is up to investors to decide what they want. People should never invest in something they don’t fully understand,” he said.
Matthew Allen, swissinfo.ch
Swiss Banking Ombudsman
The Swiss banking ombudsman is an independent mediator whose services are free of charge. He deals with specific complaints raised against banks based in Switzerland.
The banking ombudsman also runs a contact office for persons searching for dormant accounts.
The organisation took up its duties in April 1993. Since then the office deals with an increasing number of enquiries.
Hanspeter Häni has been the banking ombudsman since September 1, 1995. He is supported by a multilingual team of lawyers, economists and bankers.
The office of the Swiss banking ombudsman is supported by a foundation, established by the Swiss Bankers Association.
The foundation's board consists of independent public personalities and appoints the ombudsman. Its president is Annemarie Huber-Hotz, who was previously the Swiss federal chancellor.
Can’t get satisfaction
The Swiss banking ombudsman received 4,757 complaints last year, up from 4,163 in 2008.
After stripping out complaints that were not pursued by the investor (1,908), those that the ombudsman did not support (1,928) and those that the banks did not support despite ombudsman intervention (249), only 14% (672) received full compensation.
The large number of initial complaints equated to 140-160 a week compared with the average rate of 30. However, there is evidence that the number of complaints has started to drop off and reach more normal levels.
The average sum of losses involved ranged from SFr10,000 to SFr100,000.
Around 71% of the cases in 2009 related to investment or wealth management advice. This compares with 47% in 2008 and just 15% in 2006.
The complexity of such cases also takes more time to handle. The number of complaints that took more than six months to deal with rose from 4% in 2008 to 32% last year.
Only a quarter of complaints could be handled inside a month compared with 69% in 2008.
Complaints can be submitted by telephone or electronically, but the ombudsman only pursues claims made formally in writing.
Such complaints numbered 2,849 last year – up from 1,170 in 2008 and 660 in 2006. The ombudsman pursued 58% of these cases with the banks last year compared with a normal rate of around a third.
Of these 1,657 complaints, the ombudsman found no case to answer in 736 cases after asking the banks for their side of the story.
Of the 921 cases the ombudsman thought merited compensation, 73% received full satisfaction while 27% were either rejected by the bank or too little compensation was offered.
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