Keeping pace with changes to the FSA consumer complaints handling rules
The FSA recently published its latest Consultation Paper on complaints handling, CP11/10, which will change the way in which it expects firms to deal with customer complaints. It forms part of the move by the FSA to prepare for a more customer-oriented approach with its successor, the Financial Conduct Authority.
Customer complaints handling by firms will be increasingly under the spotlight by the FSA and recent press has demonstrated the penalties for failing to deal with complaints at the right level1. Encouragingly, some firms have begun to embrace the use of improved complaint handling to enable them to offer differentiated customer experiences. NatWest’s recent publicity campaign promotes their ‘Customer Charter’, consisting of 14 long term promises, including Commitment 12, “We will resolve customer complaints fairly, consistently and promptly”. Barclays adopted their brand vision of ‘Lives Made Much Easier’ across their Global Retail Banking Group, with the intention of transforming all of their branches by the end of 2013 to get “happy customers, strong profits and good returns”2.
This drive from the FSA coincides with the UK High Court’s dismissal of the Judicial Review of the new PPI complaints handling measures, brought by the British Bankers Association, which has resulted in leading UK banks setting aside provisions to meet potential compensation demands from customers. Whilst banks and other financial institutions are moving forward in handling PPI complaints, this has highlighted the continuing failure in the way in which many firms address customer complaints.
The main changes introduced by CP11/10 are:
- Increasing the Financial Ombudsman Service award limit to £150,000.
- Abolition of two-stage complaints-handling process.
- Firms to undertake root cause analysis and consider Financial Ombudsman Service ("the ombudsman service") decisions in development of their complaints handling procedures.
- Requirement for firms to appoint a senior individual to oversee complaints handling.
The new award limit of £150,000 will take effect from 1 January 2012 and is intended to address the decline in real terms of the protection afforded to customers since the ombudsman service’s establishment in 2001. It is worth noting that the High Court ruling in November 2010 clarified for both firms and customers that complainants cannot accept an award of up to £150,000 from the ombudsman service and then sue for additional redress for the same loss. However, the ombudsman service can continue to recommend to firms to pay in excess of the new limit, and firms can choose to do so.
The abolition of FSA’s existing two-stage complaints-handling process will be replaced from 1st July 2012 by the requirement for firms to investigate complaints fully at the first time of asking and not passing responsibility back to the consumer to come back to firms if they are dissatisfied with an initial response. These changes are intended to support the FSA’s ambition to bring about culture-change in many firms in how they treat customer complaints, with the need to embrace the positioning around customer outcomes. Whilst there must be recognition of client dissatisfaction, firms need to find a way to welcome complaints and feedback, to enable them to identify opportunities to improve customer experience and loyalty. Where customers have the opportunity to provide constructive criticism, to put across their views on how they feel they are being treated and whether the firm is providing its products and services in accordance with their expectations, they are providing that firm with a useful tool to deliver a differentiated and competitive service.
The failure of many firms’ own complaints handling (particularly banks) frequently made the complaints process difficult and intimidating for customers, driving many to seek alternative avenues, such as claims management companies, which have seen significant growth in recent years. Although many argue that the overall system is at fault, the changes required by the FSA have been welcomed by the ombudsman service. As the chief ombudsman, Natalie Ceeney, remarked at the BBA’s annual international banking conference in June 2011:
“Complaints are customer feedback. This is your customers telling you what you did wrong.”
The tools to improve how customer complaints are handled are already available to firms, but are now being pushed by the FSA as a requirement. Root cause analysis should assist firms to identify why customers are dissatisfied and help identify a process or operational failure or, indeed, a training need to address the area of concern.
Whilst all customer complaints should be considered individually, it is the responsibility of the firm to understand fully why the customer has complained, whether there has been any other customers making similar complaints and what actions can be taken to mitigate the likelihood of such events reoccurring. Furthermore, the requirement to consider ombudsman service decisions and other relevant material is to be incorporated within firms' complaint-handling procedures when considering outcomes, and recording the basis for their decisions accordingly. This should ensure that when a customer complains to a firm, their complaint will be handled promptly, fairly and consistently. The FSA is expecting firms to substantively address all complaints they receive within 8 weeks by July 2012.
To strengthen complaint handling procedures further, the FSA is requiring firms from 1st September 2011 to appoint a senior individual to be responsible for the oversight of complaints handling. Such individuals are required to hold a governing function rather than a significant influence function, on the basis that they must be able to both ensure sufficient resources are dedicated to complaints handling and exert adequate pressure on other parts of the business to take appropriate action where failures elsewhere have led to complaints. The FSA is not convinced that those individuals holding significant influence functions, such as compliance oversight (CF10,) will always be able to exert such influence. Indeed, the ombudsman service is of the view that complaints-handling is better located somewhere close to marketing or the central management of the business, rather than under compliance, based on the rationale that good complaints handling encourages customer loyalty and increased business.
The overseer of complaints handling need not be involved in its day-to-day management, but will be responsible for the oversight of the firm’s compliance with DISP (the FSA’s Dispute Resolution Process for complaints). This includes reviewing the firms’ management information in relation to complaints to assess both if it is fit for purpose, and whether appropriate actions are taken in response to the root cause analysis. There will be no need to notify the FSA or the ombudsman service of the appointed individual but they must be identified when requested.
The FSA, and subsequently the FCA, will continue and increase their focus upon the fair treatment of customers. Firms should address the new requirements through embedding a culture committed to treating customers fairly and using effective complaints-handling to ensure the delivery of fair outcomes for their customers. The process firms adopt will be scrutinised closely by the regulator; many need to give it greater weight in terms of its value of their business. Ultimately, greater customer service is a critical step on the road to restoring customer confidence.
Principal Advisor, Regulatory Services