In a Final Notice issued on 1 June 2016, the Financial Conduct Authority ("FCA") fined CT Capital Limited ("CT Capital") 2,360,900 in relation to its handling of payment protection insurance ("PPI") complaints.

This is the latest in a string of Final Notices criticising firms for their approaches to complaints handling, particularly in relation to PPI.

PPI has long been a toxic product in the eyes of the regulator, the media and (perhaps as a result) customers. However, these cases also highlight the importance placed by the FCA on complaint handling more generally. Proper complaints handling forms a key part of treating customers fairly: by definition, those who complain already see themselves as having been let down by firms once and the FCA views complaint handling breaches as failing customers a second time.

More generally, redressing customers where mis-selling has occurred is a key part of restoring the public's trust in banks and other financial institutions by showing that past mistakes will be tackled.

According to the latest FCA data, in the second half of 2015, 2.11 million complaints were made by customers (over 11,500 per day).1 Whilst PPI remains the single highest complained about product, firms can face significant volumes of complaints about other products or services, with challenges coming either from the scale of the business, or spikes driven by particular events.

We examine below the findings from the CT Capital Final Notice before going on to draw some broader lessons to help firms with the challenges of implementing robust, large-scale complaints handling processes that satisfy the FCA's requirements and which ultimately ensure that every customer who complains is treated fairly.

The CT Capital Final Notice

CT Capital was the parent company of a group of companies operating as lenders and loan brokers (known as the "CT Group"). CT Capital was responsible for handling PPI complaints on behalf of the CT Group, which sold over 30,000 PPI policies since January 2005 when the sale of general insurance products, including PPI, first became a regulated activity.

The FCA found that CT Capital had breached Principle 3 ("Management and control") and Principle 6 ("Customers' interests") of its Principles for Businesses. In particular, the FCA identified the following failings:

  1. Failure to comply with DISP App 3: Although new provisions in the FCA Handbook dealing specifically with PPI complaints handling came into force in December 2010 ("DISP App 3"), CT Capital did not implement processes to comply with those provisions until almost a year later, in November 2011. As such, CT Capital directed its complaints handlers to focus on whether internal sales procedures had been followed, which meant that they did not consider whether any of the sales failings identified in DISP App 3 had occurred in individual cases.
  2. Inadequate guidance (particularly on suitability): The FCA found that CT Capital did not give adequate written guidance to complaints handlers, even after new procedures were implemented in November 2011. In particular, CT Capital had "failed to provide any meaningful guidance to complaint handlers on what information sales advisers may have been expected to ascertain, and what constituted 'reasonable care', to ensure suitability." The guidance that was given was also criticised for being drafted in such a way as to encourage complaints handlers to seek reasons to reject complaints where PPI was found to be unsuitable, rather than to carry out an impartial assessment.
  3. Improperly time-barring complaints: Despite being warned by external consultants in March 2011 about its unfair time-barring policy, CT Capital inappropriately rejected all PPI complaints relating to sales made more than six years previously without giving consideration to the question of when a customer may have become aware (or ought to have become aware) of the cause for complaint. Moreover, when rejecting some complaints as time-barred, CT Capital failed to notify complainants of their right to refer complaints to the Financial Ombudsman Service ("FOS").
  4. Lack of quality assurance: Initially, CT Capital had no formal quality assurance process in place for monitoring whether complaints handlers were delivering fair and consistent outcomes. Although CT Capital implemented a quality control process after November 2011, the FCA criticised that decisions were assessed against complaint handling procedures but there was no process to identify weaknesses in the procedures themselves. Moreover, CT Capital seconded members of its audit and compliance departments to the complaint handling team but did not replace their original roles, meaning there was no independent oversight of the process.
  5. Failure to consider FOS decisions: The FCA criticised CT Capital for failing to consider and analyse the content of FOS decisions and to use them to inform its ongoing PPI complaint handling processes and its PPI sales practices.
  6. Use of sales documentation: CT Capital instructed its complaints handlers that information contained in sales documentation could be sufficient to correct deficiencies in the sales calls themselves. This was directly contrary to guidance from the Financial Services Authority and the FOS.
  7. Weaknesses in redress methodology: The FCA also identified a flaw in CT Capital's redress methodology in relation to particular complaints which meant that, where not all sales failings were identified, those complainants would receive less than the full redress to which they were entitled.

The 2,360,900 penalty, in common with other complaints handling fines, is based on an assessment of the redress which should have resulted from the firm's complaints rather than starting with the revenue generated from the underlying sales activity. The failings were judged to be level 4 (of 5) in terms of seriousness and the penalty was also increased by 15% because of aggravating factors including the numerous papers and guidance which had been issued by the FCA on this topic and decisions by the FOS which made clear that the firm's approach was not acceptable. Finally, a 20% discount was applied for settling at stage 2 (up to the period for making written representations to the Regulatory Decisions Committee).

Lessons for firms implementing complaints handling procedures

(1) Consistency vs flexibility

One of the key challenges for firms in designing and implementing complaints handling policies and procedures is to design a policy which is sufficiently prescriptive to ensure that complaints handlers take into account all relevant factors and reach consistent decisions on similar cases, whilst allowing enough flexibility for complaints handlers to respond to the unique circumstances of each customer's case.

The FCA's Final Notices show that this is a fine line to tread. In CT Capital, decision makers were instructed to focus on compliance with the CT Group's internal sales policies, which meant that they failed to consider whether any of the individual sales failings in DISP App 3 had occurred. Conversely, in this and other cases, complaints handling policies have been found wanting where they do not provide enough guidance to allow complaints handlers to make decisions (here, for example, to decide whether sales advisers have made a proper assessment of the suitability of PPI policies).

In previous enforcement cases, the FCA has consistently been critical of policies which prevent decision makers from taking into account all relevant information. For example, the FCA criticised one firm's decision to implement a policy not to search for documents relating to loans which had been repaid more than seven years ago (even though the firm knew those documents had sometimes been retained beyond its standard seven year retention policy). Firms have also been criticised for setting up assumptions about the effectiveness of underlying sales processes, and then failing to update complaints handlers when new information came to light which displaced those assumptions.

Inevitably, the demands of dealing consistently with large volumes of complaints will require some level of centralisation of the complaints process. Guidance and assistance for complaints handlers will enable them to understand the issues and test outcomes. However, firms must avoid being so prescriptive and fixed in their approach that they leave no room to adapt to the particular circumstances of any given case or where developing facts emerge which require the initial approach to be revisited.

As the FCA's Final Notices show, firms also need to put in place effective, independent quality control mechanisms to ensure the fairness and consistency of the decision making process. These processes need to go beyond the decisions of particular complaints handlers, and should also consider the robustness of the complaints handling process itself.

Governance arrangements must be in place to facilitate collection of information about complaints; to provide for escalation of relevant matters; to allow quick decisions to be made; and to ensure new guidance is communicated to front line staff without undue delay.

(2) Impartial approach

Another common criticism in the FCA's Final Notices about PPI complaints handling is the failure of the relevant firms to design complaint handling procedures in a way which complies with the need to investigate complaints impartially and to assess them fairly. In CT Capital, the FCA decided that the guidance to complaints handlers encouraged them to seek to undermine a finding that PPI was unsuitable by looking for "additional information/reasons to mitigate initial assessment". In previous cases, firms have been criticised for instructing complaints handlers to assume sales processes were "compliant and robust" which created the risk of a default position that mis-selling had not occurred.

This is a very different approach to the defensive position that firms may adopt in litigation. However, the trend of complainants, particularly in high value cases, adopting a twin track approach of pre-action correspondence which they also ask to be treated as a complaint, means firms have to consider carefully the tone as well as the content of their responses. Close co-operation between litigation and complaints handling teams is recommended.

(3) Listen to the FOS

Firms who ignore the FOS's approach to determining complaints--as set out in individual Ombudsman's decisions and in relevant guidance on the FOS website--clearly risk individual complaints being overturned and upheld against them.

Of deeper significance, however, are the FCA rules requiring firms to conduct root cause analysis and take account of Ombudsman decisions more widely. Failure to build these lessons into the complaints handling process and adapt it accordingly risks regulatory scrutiny and the imposition of heavy financial penalties on top of making redress payments to customers.

Firms need to ensure that processes are in place to identify and assess relevant guidance and decisions and then make appropriate changes. Overturn rates should also be monitored. Governance processes in respect of complaints handling teams need to be agile enough to make decisions quickly rather than let the status quo continue, as the longer it takes to react, the more complaints will be impacted (thereby directly increasing the basis for fines).

(4) Understand time barring rules

In broad terms, firms are able to time bar complaints where the event complained of took place more than six years ago. The primary six year period may, however, be extended where the customer was not aware of their cause for complaint. In those circumstances, complaints must be made within three years from the date on which the complainant became aware, or ought reasonably to have become aware, of their cause for complaint.

Since July 2015, firms have been under stricter obligations to consider time barring at an earlier stage and make clear their position in Final Responses using the wording prescribed in DISP 1 Annex 3R. Many firms previously may have left this decision until complaints had been referred to the FOS.

Under these 2015 provisions, a failure to consider time barring and inform the complainant properly about the right to refer the matter to the FOS will lead to the response not being treated as a "Final Response" for the purposes of the FCA complaints handling rules.

(5) Redress payment must be accurate and timely

Firms, including CT Capital, have been criticised for redress methodologies which fail to take into account all relevant information. One of the factors that drives the FCA to take enforcement action in complaints handling cases is the failure to pay out proper redress to customers. It is also important to ensure that payments are processed in a timely manner and redress decisions are not delayed inappropriately.

Even in cases where affected customers have been compensated for delay by payment of additional interest (arguably over-compensated given the prevalence of the standard complaints award of 8%, well above the rate customers could reasonably expect to earn in today's economic climate), the FCA has still taken action against firms for not processing complaints more swiftly.


Complaints handling remains an area of focus for the FCA as a component of treating customers fairly, and as an indicator of culture in identifying and resolving mistakes.

Dealing with mass volumes of complaints, or spikes driven by particular events can cause strain on processes. A flexible and well-managed approach should be adopted, providing guidance to complaints handlers to enable them to assess cases, while being able to adapt to emerging facts internally and react to external bodies such as the FCA and FOS.

Failure to get this right will risk significant financial penalties from the FCA, as well as further alienating customers.