Ombudsman schemes in the United Kingdom's financial sector: The insurance ombudsman,the banking ombudsman,and the building societies ombudsman

The problems facing consumers in pursuing complaints against suppliers through the courts are well known and have given rise to the development of alternative strategies. This paper considers the development and use of one such strategy — the ombudsman — in dealing with the complaints of consumers against insurers, banks and building societies. The decisions to create these schemes can be seen against a background of the radical changes in the financial markets during the 1980s. However, the practice of the different ombudsmen is also influenced by the history, rules, practices and commercial contexts of their respective industries. It is argued, for instance, that the ombudsmen have developed standards of fairness which enable them to step outside established law and practice. However, the extent to which each is willing to do this may depend on the history and legal context of the relationships which a particular sector has had with its customers.

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Ombudsmann-Regelungen im Finanzsektor Grobritanniens: Die Ombudspersonen für Versicherungen, für Banken und für Wohnbaugenossenschaften

Zusammenfassung Die Schwierigkeiten, die Konsumenten haben, wenn sie Beschwerden gegen Anbieter auf gerichtlichem Wege klären lassen wollen, sind gut bekannt und waren Anla\ für die Entwicklung alternativer Strategien. Der Beitrag behandelt eine dieser Alternativen — den Ombudsmann — bei der Behandlung von Verbraucherbeschwerden gegenüber Versicherern, Banken und Wohnbaugenossen-schaften. Die Entscheidungen, die zur Schaffung dieser Regelung geführt haben, sind vor allem vor dem Hintergrund der starken Veränderungen auf den Finanzmärkten in den 80er Jahren zu sehen. Dabei wird das praktische Vorgehen der Ombudspersonen von der Entstehungsgeschichte, von Gewohnheiten und Praktiken und vom wirtschaftlichen Zusammenhang ihrer jeweiligen Branche beeinflu\t. So haben die Ombudspersonen zum Beispiel Richtlinien für Fairne\ entwickelt, die ihnen auch Möglichkeiten au\erhalb der etablierten Bereiche des Rechts und der Praxis eröffnen. Allerdings hängt die Bereitschaft des einzelnen Ombudsmannes, solche Möglichkeiten zu ergreifen, von der Geschichte und dem rechtlichen Kontext der Beziehungen ab, die seine Branche mit ihren Kunden gehabt hat.

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The authors would like to thank VW-Stiftung which funded the project, of which an earlier version of this study formed a part: Southern Extension of the EC, Financial Services and Consumer Protection; as well as Magda D'Ingeo and Katrina Wilson, both of Brunel University.     

E-Finance: An Introduction

E-finance is defined as “The provision of financial services and markets using electronic communication and computation”. In this paper we outline research issues related to e-finance that we believe set the stage for further work in this field. Three areas are focused on. These are the use of electronic payments systems, the operations of financial services firms and the operation of financial markets. A number of research issues are raised. For example, is the widespread use of paper-based checks efficient? Will the financial services industry be fundamentally changed by the advent of the Internet? Why have there been such large differences in changes to market microstructure across different financial markets?     

How Do Investors Regard ESOs?

All top‐50 and more than 80% of the top‐500 Australian listed companies now reward their executives with stock options (ESOs) of one kind or another.₁ We address the question: “Which method of accounting for ESOs — current practice, the US FASB's recommended practice or the AASB's preferred position — most closely reflects investors' pricing decisions?” We answer the question using models that relate a company's stock price to its earnings and book value of equity calculated according to these three choices of accounting treatment.     

Employee Reload Options: Pricing, Hedging, and Optimal Exercise

Reload options, call options granting new options on exercise,are popularly used in compensation. Although the compound optionfeature may seem complicated, there is a distribution-free dominantpolicy of exercising reload options whenever they are in themoney. The optimal policy implies general formulas for numericalvaluation. Simpler formulas for valuation and hedging followfrom Black–Scholes assumptions with or without continuousdividends. Time vesting affects the optimal policy, but numericalresults indicate that it is nearly optimal to exercise in themoney whenever feasible. The results suggest that reload optionsproduce similar incentives as employee stock options and sharegrants.     

Unit initial public offerings: Staged equity or signaling mechanism?

We investigate the use of unit (i.e., package) initial public offerings by Australian industrial firms and conclude that their use reflects their role as a signaling mechanism (Chemmanur and Fulghieri, 1997), as distinct from the agency–cost explanation offered by Schultz (1993). From a sample of 394 IPOs between 1976 and 1994, the 66 firms making unit offerings are typically riskier, use less prestigious underwriters and have a lower level of retained ownership than other IPO firms. While these results are also consistent with Schultz's agency cost explanation, other results we report are not. We find no difference in underpricing etween unit IPOs and other IPO firms, nor are there any significant differences in the planned uses of proceeds reported in the prospectus, post–listing failure rates or secondary equity offerings of the type predicted by Schultz. We do however, report evidence consistent with a prediction unique to the signaling explanation. After controlling for the level of ownership retained by insiders, the proportion of firm value sold as warrants is increasing in IPO firms' riskiness.     

Discussion of “Differential Market Reactions to Revenue and Expense Surprises”

Ertimur et al. (2003, this issue) study the difference in the market;s reaction to revenue versus expense surprises. The discussion first reviews their main findings and assesses the paper's potential contributions. Alternative explanations are then considered for the base-line result that the market reacts more to revenue surprises than to expense surprises. The hypothesized reasons for revenue surprises to matter more are critiqued, as are the tests of the hypotheses, and potential extensions that would link these test to financial statement analysis are suggested. Finally, two aspects of the assessment of how the reaction to revenue and expense surprises differs across value and growth firms are discussed: The definitions of value and growth firms and the potential benefits of assessing why analyst revenue forecasts are (not) observed for many value (growth) firms.     

Does the Stock Market Compensate Banks for Diversifying into the Insurance Business?

This paper explores a wide range of corporate restructurings, all available deals from wire services, in the banking and insurance sectors that led to bancassurance ventures. An event study methodology is employed to calculate excess returns on and around the deals’ announcement date. Using both univariate and multivariate analysis the paper finds bank driven mergers, deal's size and regional categorization all triggering positive and significant market reactions. Unlike the univariate framework, multivariate analysis shows that geographic focus and language are not significant factors. The results also indicate that markets are indifferent with respect to bank withdrawals from the bank‐insurance operations. Finally, Canadian, U.S. and European bank‐insurance deals produce positive results, while Australasian bidders offer statistically insignificant equity returns.