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Complaint Handling Update

  • United Kingdom
  • Financial services disputes and investigations
  • Litigation and dispute management

27-11-2019

New dispute resolution service for SMEs

Background

In March 2018, UK Finance commissioned an independent review into the complaints and alternative dispute resolution landscape for the small and medium sized enterprises market in the UK.  An independent panel selected Simon Walker, the former Director General of the Institute of Directors, as the chair of the review.  The review focussed on disputes between financial services providers and SMEs that remain unresolved through existing customer complaints procedures and may be unsuitable for court processes.  The findings of the review were published in October 2018, and UK Finance responded with an industry response in November 2018.  The response supported access to an appropriate voluntary ombudsman scheme for businesses with turnover of between £6.5m and £10m and a balance sheet of up to £7.5m, and proposed the establishment of a voluntary ombudsman scheme for historic cases.

The Business Banking Resolution Service (‘BBRS’)

The BBRS is a new, independent organisation set up to resolve disputes between businesses and their banks [1]. The website for the BBRS is now live and businesses registered in the UK are invited to register their interest in using the service to resolve their complaint for free. It is hoped that the BBRS will launch fully in early 2020, although there could be some delay as it is a significant task to launch a new dispute resolution service and much may depend on how the live pilot goes and how quickly final rules can be put in place. Decisions will be based on what is fair and reasonable in the circumstances and the BBRS seeks to inspire confidence through a consistent approach [2].

What complaints can be heard and what businesses are eligible?

  • The definition of complaint mirrors the definition contained in DISP for eligible complaints for FOS, but is obviously limited to actions by the participating banks or any other parties which the participating banks have connection with in respect of marketing or providing financial services or products.
  • Businesses must first have complained to the participating bank within required timescales and given them the opportunity to respond.
  • The BBRS operates both an historical scheme and a current scheme.  The criteria for these schemes is as follows:
    The current scheme - for the period from 1 April 2019 onwards:
    • Turnover up to £10m per annum; and
    • Total assets up to £7.5m; and
    • The complaint is not eligible for FOS 
  • The historical scheme - for the period from 1 December 2001 to 31 March 2019:
    • Maximum turnover up to £6.5m per annum; and
    • Total assets up to £5m
  • Complaints which the BBRS cannot consider include those which are eligible for FOS, have already been determined by FOS or the courts, or are currently being pursued through the court process. Further, complaints that have already been considered by an independent review process will not be eligible.

Comment

For those businesses which are too large to access FOS and lack the finances to pursue claims through the courts, the BBRS is a very positive and ground-breaking step in the right direction.  UK Finance has estimated that around 60,000 businesses will be eligible for the historic part of the scheme alone.  It stretches back to events that happened from 2001 onwards so has a very broad reach.  This will be challenging in practice as records may not be available from that long ago and memories will have faded making it difficult to achieve fair outcomes.

Some businesses remain skeptical of its potential success and Kevin Hollinrake MP, the chairman of the All-Party Parliamentary Group on Fair Business Banking, whilst praising the work to date, has criticised the model arguing that an independent process should be built in for businesses that want to have their complaints looked at again: “it would be a fundamental error to exclude complainants that have clear grounds to believe that they have been the victim of a terrible injustice.  Indeed it would risk undermining a principle premise of the scheme, the restoration of trust between SMEs and banks[3].

The success of the scheme will depend on those participating to continue to work together positively and we wait to see the outcome of the pilot.  A challenging area will be finding a way to provide dispute resolution for insolvent/dissolved firms, particularly when the dispute relates to historic complaints.  The BBRS is committed to providing a mechanism for directors and shareholders of insolvent/dissolved firms to bring complaints that is compatible with company and insolvency law, policy and practice.  A key challenge here is that to achieve consistency with insolvency law, an award may not vest in the directors or shareholders but to the creditors who may include the bank.

Given the concerns regarding eligible complaints, it could be that we will see some modifications to the model in the future, or indeed the scheme could still fall down altogether if those representing the businesses cannot agree[4].

The future funding of FOS

FOS has been preparing itself for its world post PPI and wants to create a stable footing so that its funding is less dependent on the volume of complaints it handles (assuming it will be a smaller organisation in future).  In July 2019, FOS formally consulted on proposals regarding its funding (see here) and recently published its response and next steps (see here):

Rebalancing the proportion of income FOS gets from the levy compared with case fees

Presently, 85% of FOS’s funding comes from the £550 case fee and 15% comes from the levy.  FOS considers that there is potential for significant volatility in demand for its service and there is an ongoing uncertainty about how many PPI complaints will be received in the months ahead. Therefore, it has said that in December 2019, it will consult on a proposal that approximately 60% of funding should come from case fees and 40% from the levy (having taken into consideration responses from businesses that more time is needed to assess and understand the impact of rebalancing the case fee and levy income).  FOS has also stated that it will continue to review the position, with an aspiration to reach a split between case fee and levy income in the order of 50:50.

The current case fee is £550.  FOS will also consult on setting the case fee at around £650.

Changing the number of ‘free’ cases

As FOS anticipates its service becoming smaller, it will also consult on changing the number of free cases to 10 per firm, and to 50 for each group within its group account fee arrangement.  Based on its current assumptions, FOS estimates that eight in ten firms whose customers use FOS will still not pay any case fees.

Maintaining reserves of a minimum of six months’ operating expenditure

FOS currently holds reserves equivalent to 3 months of operating income and proposes to increase this to 6 months.

Next steps

FOS is trying to generate greater stability and certainty on the basis that nothing will replace the scale of PPI in the future.  However, mixed responses were received to the proposals and the rebalancing of the case and levy fee income was of particular concern.  Many respondents felt that the proposals moved away from a ‘polluter pays’ principle, and instead sought to spread the cost of FOS across all financial service providers which might mean that there would be less incentive to reduce complaints overall. 

Interestingly, FOS confirmed that it has no intentions to charge CMCs to bring complaints as consumers have a right to ask a third party to complain on their behalf and any charge for CMCs would inevitably mean the cost was passed to consumers, potentially creating barriers to using the service.  However, FOS will continue to help improve the way CMCs engage with its service and complaints generally – with the aim of preventing cases being referred unnecessarily and improving the quality of submissions made by CMCs.  FOS also discounted charging financial businesses only for complaints upheld (whether or not these were brought by CMCs) on the basis that it would create unacceptable complexity as well as the perception that FOS had an incentive to resolve complaints a certain way.

FOS has decided to consult on the proposals in its usual budget consultation in December 2019.  A watching brief should therefore be kept but subject to further consultation responses, we can expect changes in line with those set out above for 2020/21.

Latest judicial review of FOS

The Administrative Court has recently handed down its judgment in R (Critchley) v Financial Ombudsman Service and two others [2019] EWHC 3036 (Admin).  Mrs Critchley had sought to challenge FOS’s rejection of her PPI complaint on the basis that it was contrary to the presumption in DISP App 3.  The court ruled in FOS’s favour and found that it had not erred in its interpretation and application of the relevant rules, nor had it failed to take an individualised approach in making its decision. The case is an example of the court being unwilling to interfere with FOS’s decision making unless the decision is perverse or irrational and should give financial firms and FOS the continued confidence to reject complaints on the basis of causation, even if there had been substantial flaws in the selling of the PPI.  Our full briefing can be accessed here.

On the horizon

Loyalty in respect of financial products and services purchased by long term customers is a key theme in complaints.  The FCA recently published its interim findings into general insurance practices in home and motor insurance (see here), which concluded that competition is not working well for all consumers in these markets, with around 6 million policyholders paying high premiums and not getting a good deal on their insurance.  The FCA’s final report and consultations on remedies is due in Q1 2020.  Meanwhile we are likely to see a continuing growing trend in these types of complaints in the near future as it increasingly comes under regulatory focus. 


[1]  The current participating banks are Barclays, Clydesdale Bank (including Yorkshire Bank and Virgin Money), Danske Bank, HSBC, Lloyds Banking Group (including Lloyds Bank and Bank of Scotland), RBS Group (including Royal Bank of Scotland, Natwest and Ulster Bank Northern Ireland) and Santander UK plc.  Whilst the BBRS is independently operated, managed and governed, it is funded by the participating banks.

[2]  Presently the BBRS has not said how long it will take to determine a complaint but it has said that it may take longer to determine a case under the pilot and more customer contact will be involved.

[3]  Kevin Hollinrake MP’s letter dated 4 October 2019 to the Chair of the BBRS Implementation Steering Group (ISG), Lewis Shand Smith (see here).

[4]  Further information on the BBRS can be found here.

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