The FCA has finally published its report on its review of consumer complaint handling at 15 major retail financial services firms. Despite the expressed intention at the launch of the review last year for phase 2 to "consider firms' approach to redress and root cause analysis", the report is explicitly and determinedly forward-looking and does not – as some feared – criticise firms' failures to root out systemic historic failings and proactively provide redress. In the end, the FCA's stated aim was to uncover potential barriers to effective complaints handling and developing solutions going forward.
In summary, the FCA found that the firms in question had taken steps to improve their complaint handling processes, but that more could be done to deliver fair complaint handling and consistent outcomes for all consumers. It concluded that there were certain weaknesses which were caused by four main barriers to effective complaint handling:
- Incorrect application of the FCA's DISP rules;
- Complaint handling culture of firms;
- Operational barriers; and
- Management Information (MI) weaknesses.
I highlight below some of the particular "opportunities" for improvement that the FCA identified in its report:
The report stated that firms often established their processes purely with reference to the DISP rules, which had led to a 'box-ticking' culture of complaint handling. This could limit the ability of staff to exercise good independent judgement regarding whether the established processes actually delivered an appropriate outcome.
In terms of potential improvements, the FCA stated that its rules were "not especially prescriptive", and that firms should empower their front-line staff to encourage swift and simple resolution to appropriate complaints, rather than automatically adopting a "conservative, legalistic approach".
Inconsistencies in redress levels
According to the report, the FCA found that firms appeared to be having difficulty in assessing levels of redress for complaints concerning "material inconvenience" or distress, as opposed to those which related to financial loss/compensation, which was leading to inconsistent awards. Those inconsistencies were exacerbated by the fact that front-line staff frequently offered lower amounts of redress than complaints teams which received "escalated" complaints.
As a result, the FCA recommended that processes and guidelines should be consistent across all business areas. Furthermore, any redress 'calculators' used by firms should be subject to annual testing and review to ensure they were still appropriate and up-to-date.
The report also emphasised the importance of accurate recording and reporting of consumer complaints. The FCA stated that more informative recording could assist firms with understanding / addressing the underlying reasons why customers had complained in the first place.
In particular, the FCA noted that more needed to be done by firms in order to review / understand the consumer experience of the complaints process so that they could effectively assess the "quality of outcome" for consumers. In that regard, the FCA noted that it was "disappointing" that many firms assessed outcome quality based on the amount of redress paid.
The review group made a number of suggestions, including amending some of the DISP rules on which the FCA is due to consult. The FCA would welcome responses from any interested firms at that point.
In the meantime, the FCA has recommended that all firms should review the report and consider their own complaint handling arrangements.
Although this report represents an initial assessment of complaint handling of 15 major retail financial firms, and any prescriptive changes or recommendations are yet to be finalised, it appears that the FCA is keen to encourage more flexibility in firms' approach to complaint handling.
This is perhaps to avoid firms immediately adopting a defensive approach to any complaints, and to discourage firms responding to a consumer complaint in the same 'formal' manner as one might respond to a Letter of Claim drafted by a law firm.
Whilst encouraging some flexibility, the FCA has also identified a number of potential improvements to firms' guidelines, such as ensuring the term "complaint" is clearly defined, and has encouraged the wider use of MI regarding complaints to ensure senior management can effectively manage (or report) such complaints.
The review focussed on mass consumer complaints handling by large institutions and therefore says little of direct relevance to advisory firms that tend to face fewer but larger complaints. Perhaps this, and the consultation which we await with interest, will support our argument that DISP complaints and FOS should be the preserve of smaller and simpler issues, whilst complex, high-value disputes should be dealt with under the law in the courts.