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Effective complaint handling - what are the likely changes arising out of the FCA thematic review and the new consultation paper?

  • United Kingdom
  • Financial services - Retail finance


The FCA published the results of its Complaint Handling thematic review in November (the Review). A consultation paper on improving complaint handling followed in December.

All firms will now need to consider the themes highlighted in the review and evaluate their complaint handling procedures in the light of its findings. Complaint handling is high on the FCA’s radar because ensuring that firms treat customers fairly is at the heart of its consumer protection agenda.

The Review is forward-looking and solutions-focused. It seeks to identify changes that can be made to the way firms handle complaints to ensure that consumers’ interests are at the core of the business and provide ‘effective and transparent complaint handling arrangements which ensure that complaints are dealt with reasonably, promptly and fairly1.

The thematic review

The FCA’s findings

The FCA found that firms have taken positive steps to improve their complaint handling, such as increasing the involvement of senior management in the complaint handling process. However, more could still be done in each of the five key stages of firms’ complaint handling.

The FCA identified four main barriers which prevent firms from delivering effective complaint handling:

  • Application of the rules in practice – the FCA is concerned some firms may be applying a ‘tick box approach’ and failing to introduce judgment and discretion in the process to achieve effective complaint handling.  
  • The current culture of complaint handling does not place customers’ interests at the heart of the process.
  • Operational factors - consistency and quality of staff training programmes, best practice guidance and systems used for recording complaints are essential to ensure complaint handlers are empowered to make the correct decisions.
  • Effective Management Information (MI) is critical and the FCA identified weaknesses in the MI collected by some firms and found that Root Cause Analysis (RCA) is often misunderstood and its importance underestimated.

The method

The FCA took a collaborative approach to the preparation of the Review. It worked with 15 major retail finance lenders, five trade bodies, the Financial Ombudsman Service (FOS) and consumer bodies to identify how firms handle complaints, what barriers exist to effective complaint handling and how firms can look to overcome or remove those barriers.

The firms conducted self assessments which, together with a sample of MI, helped the FCA to understand how complaints were handled. The FCA also assessed firms’ operating models to get to grips with the structure of complaint handling operations and engagement of senior management. A working group was set up to discuss common complaint issues.  

PPI complaints were excluded from the review given that they are subject to separate ongoing work.

Next steps following the thematic review and consultation paper

The main purpose of the thematic review was to identify what firms could do differently to improve complaint handling. There are two key strands which emerge from the Review: recommendations of the working group and pro-active action by firms.

The working group made a series of recommendations for improvement. The FCA has now published a consultation paper on the proposed policy changes. The  proposals include the following:

  • An extension to the ‘next business day’ rule to three business days to allow firms to deal with complaints more quickly and efficiently than if those complaints had entered the firms’ more formal complaints process.
  • Firms must report all complaints received, removing the ‘non reportable’ aspect of complaints dealt with under the ‘next business day’ rule, to increase transparency (proposed implementation date March 2016).
  • A requirement that firms send a written communication to all consumers whose complaints are resolved within three business days explaining how they can refer the complaint to the FOS if unsatisfied with the response (which may increase the number of FOS complaints and is an issue which will require further thought). 
  • Revisions to the way the FCA collects and publishes data on complaints to achieve greater transparency and provide more “contextualised consumer-focused data”.
  • New rules limiting the cost of calls to financial services firms with all post-contractual calls limited to ‘basic rate’ charges (including mobile numbers).

The FCA has decided not to take forward some of the proposals put forward by the working group. For example, there will be no widening of the definition of complaint by removing the references to ‘material’ distress and inconvenience. The FCA, while recognising that the definition may not be easy to apply in practice, believes that firms should train staff to enable them to apply the test effectively. 

The consultation also sets out proposed changes to the DISP rules to implement the Alternative Dispute Resolution Directive and the Mortgage Credit Directive.

So, what should you do now?

Consider responding to the consultation paper

The consultation is open until 13 March 2015. Firms should review the consultation paper and consider putting in a formal response. The full list of questions is set out at pp42-43 of the consultation paper.   

Review your complaint handling policies and practices

The FCA does not expect firms to await the results of the consultation before taking any further action. It makes clear that all firms should now digest the findings of the Review and consider their complaint handling policies and practices in light of the findings.

Section three of the Review sets out the findings in detail and outlines various learning opportunities (which identify some of the practical barriers identified) and case studies (examples of innovations made by firms). These provide practical examples of how all firms may make meaningful changes which deliver improved complaint handling to customers.

Section four of the report further suggests areas of focus for firms considering their complaint handling operating models, policies and practices. These include:

  • Considering whether a firm’s approach to complaint handling has the interests of consumers at heart
  • Whether firms are successfully avoiding a ‘tick-box’ approach to complaint handling and compliance with the FCA’s DISP rules
  • Whether a firm’s systems and processes prevent the accurate recording of complaint and their ability to conduct effective RCA
  • Considering consistency in redress payments made for distress and inconvenience.

Many of the firms who conducted the self assessment exercise commented to the FCA that they found it useful and intended to carry out similar exercises in the future.  This was a different approach to a thematic review by the FCA and in many ways constructive although those firms not involved have commented that they have missed out on the richness of the dialogue with FCA over some months which may give those firms involved an advantage in understanding FCA’s thinking in depth on certain issues.

Further information on the self assessment process is set out in the Review and may provide a helpful first step in reviewing complaint handling procedures and compliance.

Conclusion and likely actions

The Review and consultation paper give a valuable insight into the FCA’s approach to the regulation of complaint handling and stress the importance the FCA places on effective complaint handling and the development of root cause analysis. Both documents are a must read for all firms. The collaborative approach has produced practical examples as to how improvements can be made. The challenge now is to take forward the Review’s findings and deliver the complaint handling process which the FCA will expect in 2015 and beyond.

Perhaps the most challenging area of those highlighted is root cause analysis.  The FCA has acknowledged improvements in this area but we know from our discussions with clients that it is perhaps one of the most difficult areas to tackle.  This is because it involves combining (amongst other things) experiences in complaint handling which can often be distorted by the involvement of Claims Management Companies and decisions of the FOS where our clients still report inconsistencies in decision making.

We are holding an event focusing on the challenges of root cause analysis in June 2015 and welcome any comments from those reading this in respect of the issues you would like to see covered to ensure it is as useful as possible. Register here to receive information about this and other forthcoming Eversheds events tailored to your interests.

1Executive summary TR14/18 Complaint Handling (return)

TR14/18 - Complaint handling thematic review

CP14/30 - Consultation paper – Improving complaint handling