The Financial Services Ombudsman failed to follow fair procedures in the manner in which he upheld a complaint by a credit union against stockbroking firm J & E Davy, the High Court has ruled.
Enfield Credit Union said Davy had failed to properly advise it of the risks of investing in bank bonds which later fell in value.
Mr Justice Peter Charleton today directed Ombudsman Joe Meade to conduct a fresh investigation into the complaint against Davy by the credit union according to the correct procedures as outlined by the judge, including holding an oral hearing relating to the advice from Davy to the credit union.
Fair procedures must be adhered to when determining complaints against financial service provoiders with both complainants and financial service providers being treated equally, the judge stressed. The need for fair procedures was underlined by the
fact the Ombudsman’s decision was published on the internet and the court could not ignore the potentially “drastic consequences” of such a finding.
While his decision has implications for the future conduct of investigations by the Ombudsman, the judge stressed the Ombudsman should not be hampered with “tribunal-like” procedures as the Oireachtas clearly intended his investigations to be conducted informally and speedily.
The judge set out a series of steps for the Ombudsman to follow in investigations, including asking the sides to consider mediation as a first step, providing all relevant documents to both sides and allowing oral hearings where necessary to fairly decide complaints.
Mr Justice Charleton was giving his reserved judgment on Davy’s judicial review challenge to the Ombudsman’s finding of January 21st last that it failed to properly advise Enfield CU about the risks of investing in three perpetual bank bonds.
The judicial review is the first of three sets of proceedings by Davy aimed at overturning the decision. A statutory appeal by the firm and a challenge to the constitutionality of provisions of the Central Bank Act relating to the powers of the Ombudsman will be heard at a later stage.
Enfield CU had invested €500,000 in three perpetual bonds issued by three banks -Nordea Bank, Jyske Bank and Oko Bank - between September 2004 and April 2005. The total value of the investments in July 2007 was €422,959.
The Ombudsman last January upheld Enfield’s complaint and directed Davy to pay the credit union €500,000 in exchange for the bonds and to refund all fees and commissions paid.
Mr Meade upheld Enfield’s claims that Davy failed to disclose material information when advising it about the perpetual bonds and did not alert the credit union adequately to the risks inherent in the bonds.
Davy insisted it had provided full and proper advice about the nature of the bonds and the risks involved. The firm provides investment advice to some 380 credit unions and about 139 of these had purchased similar bonds to those invested in by Enfield.
In his judgment, Mr Justice Charleton said the Ombudsman, in making the disputed rulings, carried out his function in good faith and with “a high level of skill”. The court’s function was to examine only how the decision was arrived at, not its merits.
The judge noted Davy had sought but was refused various documents and an oral hearing and had complained about the conduct of matters by both the Ombudsman and his Deputy.
While Davy had given copies of all the documents it was sending to the Ombudsman to Enfield CU, the credit union sent Davy nothing, he also noted.
