What is changing, what difference will it make and what other developments lie ahead?

Today is the day that the key complaint handling changes come into effect following the publication in July 2015 by the Financial Conduct Authority (FCA) of Policy Statement 15/19 on Improving Complaint Handling. The changes follow on from the FCA’s thematic review into Complaint Handling in 2014.

Complaint handling remains high on the FCA’s agenda because ensuring that firms treat customers fairly is at the heart of its consumer protection agenda and complaint handling is a key barometer of the culture of a firm. The FCA hopes that the new rules will benefit consumers who wish to complain by ensuring complaints are handled more quickly, easily and transparently than at present.

Key changes

The changes coming into force today are:

  • extending the ‘next business day rule’, where firms are permitted to handle complaints less formally and without sending a final response letter, to the close of three business days after the date of receipt
  • firms must report all complaints, including those handled by the close of three business days after the firm receives them
  • raising consumer awareness of FOS, by firms sending a ‘summary resolution communication’ following the resolution of complaints handled by the close of the third business day after receipt
  • firms must complete a new ‘complaints return’ which requires firms to send data to the FCA twice a year on the number of complaints they receive.

The changes affect all FCA-regulated firms within the scope of the Compulsory Jurisdiction of FOS and across all financial services sectors.

Implications

At present, complaints are only reported if they are not resolved informally before the end of the next business day after they are received. The new rules require all complaints to be reported. This is likely to mean there will be a spike in levels of complaints reported when the FCA publishes data for the second half of 2016 (H2 2016), expected to be published in April 2017. Firms are also likely to want to contextualise the new data when publishing their own data as consumers may struggle to understand the reason for increases unless it is well explained.

Since the changes were announced, this has brought renewed focus on the definition of complaint. The key issue here is the wording, “the complainant has suffered (or may suffer) financial loss, material distress or material inconvenience”. There is no definition of materiality and no current plans for FCA to clarify how this should be interpreted. The addition of minor complaints that are quickly resolved having to be reported brings this in tothe spotlight. Some good work has been done by industry bodies in recent months to try and achieve some consistency of approach. This is helpful as the usefulness and accuracy of complaints data will depend on a sensible and consistent interpretation of this definition.

There is understandable concern from firms about the practical implications of the new ‘summary resolution communication’ (SRC). Given more complaints should now be resolved at the early informal stage, the new communication may lead to an increase in cases going to FOS which might otherwise be resolved by the firm through its more formal 8 week process used for handling other complaints not resolved at this early stage.

The answer to this may be that firms will need to be confident that the proposed solution fully resolves the complaint before seeking to conclude it in the informal three day period. We understand that several firms have undertaken trials using the new SRC in co-operation with FOS and these have been helpful. The sense is that a well-managed complaints process should not result in material changes to the numbers of complaints being escalated to FOS.

Other developments

A series of publications relevant to complaint handling over the past few months give an insight into likely future developments.

National Audit Office Report (February 2016)

This was focused on how the bodies involved co-ordinate their activities with respect to mis-selling and the costs involved. It concluded that the FCA’s strategic approach to managing the interventions it makes in response to mis-selling is still evolving. It said that although the FCA and FOS work hard to co-ordinate their activities, they have not yet convinced firms that they have succeeded in doing this. It calls for the FCA, working with FOS, to further develop its strategic approach to mis-selling such that it is able to judge whether its interventions are having the intended effect. It recommends that the FCA and FOS work together to develop better measures of the quality of complaint handling and to publish the results. There was also a request for FOS to outline how quickly it expects to clear the backlog of PPI complaints.

FCA and HM Treasury Financial Advice Market Review (FAMR) (March 2016)

As part of the call for input, firms raised concerns about a lack of transparency, consistency and certainty of FOS’ decision making processes following complaints. In response, the report recommends that:

  • FOS should consider holding regular ‘Best Practice’ roundtables with industry and trade bodies
  • FOS should publish additional data on its uphold rates (specifically around cases where advice was given more than fifteen years before the complaint was made)
  • FOS should consider whether to establish a more visible central area for firms on its website
  • the FOS Independent Assessor report should be expanded to identify potential areas for process improvement from 2017.

The FAMR report also tackledconcerns about the lack of a longstop after which consumers cannot complain to FOS. Some firms sought a blanket 15-year time limit on liability. The report concludes that comparatively few complaints relate to advice provided more than 15 years ago (estimated by FOS to be an average 216 complaints per year, of which only 30% were upheld) and that 48% of these complaints concerned advice about mortgage endowment products. Given the historic nature of this specific problem and the fact that many of these complaints date from the pre-Retail Distribution Review era, the report anticipates that there may be a natural decline in the numbers of these complaints. The FCA and HM Treasury have therefore concluded that a longstop limitation period should not be introduced but it will be reconsidered in 2019.

House of Commons report on Financial services mis-selling: regulation and redress (May 2016)

This report also calls on FOS (by the end of July 2016) to set out publicly a clear timetable for reducing and ultimately eliminating its backlog of PPI claims. It also states that the FCA has not done enough to tackle the cultural problems that lie behind mis-selling and recommends that the FCA outlines the actions it will take in this respect. It recommends that the FCA should set out what more it will do to ensure firms check consumer understanding of the products they purchase and of their rights to claim compensation, particularly for vulnerable customers, and to report back to the committee on this work in one year’s time. Finally, it states that the FCA should develop ‘real time’ indicators of the extent of mis-selling and assess regularly how effective their actions are in reducing it.

FOS Annual Report (May 2016)

FOS report that 1.63m enquiries were received in the financial year 2015/16. This is a drop of 9% on the prior year. About 20% of enquiries turn into complaints and are investigated further. Two thirds of complaints (excluding PPI) were resolved in three months. As the official ADR provider under the ADR Directive, FOS is required to give answers to complaints within 90 days. It is seeking to change its approach in order to meet this standard across the board but is yet to achieve this.

What this means for you

It will be interesting to see how the changes coming into effect today play out in practice. We expect that the level of readiness to implement the changes will vary between firms and we may see an increase in FOS complaints resulting from the introduction of SRCs in the next few months.

The publication of complaints data for H2 2016 will be a key milestone both because of the likely significant increase in the number of complaints caused by reporting every complaint but also because the contextualising of data will allow new conclusions to be drawn as to what the data is telling us. We expect differences of approach to tackling the question of materiality will emerge which could lead the FCA to providing some commentary on this topic.

The recent reports summarised above will lead to FOS giving further information about how it will tackle the backlog of PPI complaints. This is very difficult at present due to the uncertainty as to when, if at all, any time bar will be introduced for PPI complaints and the timing of new rules and guidance on handling undisclosed PPI commission complaints. We expect to see some significant peaks in PPI complaints once the time bar is publicised which may increase FOS’ backlog.

We are already seeing a more informal approach by FOS at the early stages of complaints, seeking to engage with firms and find speedy solutions. We expect this will continue, as will the focus on meeting the 90 day time limit across all complaints in line with the requirements of the ADR Directive.

The call for further development of the approach taken around identification and handling of mis-selling claims by the FCA and FOS is likely to lead to further changes. The focus by the FCA on the culture of firms is nothing new and we expect complaint handling to continue to be a key area of scrutiny in this respect.