he Financial Conduct Authority (FCA), in collaboration with 15 major retail financial firms and five trade bodies, has undertaken a forward-looking thematic review of the way consumer complaints are handled. It has also sought input from the Financial Ombudsman Service, industry trade associations and consumer bodies
The aim of the review was to identify areas that needed improvement so that consumers’ interests are at the heart of firms’ complaint handling processes and they get a better experience when they complain in future.
Firms should have effective and transparent complaint handling arrangements which ensure that complaints are dealt with reasonably, promptly and fairly (using competent staff) and redress is provided where appropriate. It believes that complaints can give firms an opportunity to retain and enhance their consumer relationships if they are dealt with well and offer firms the ability to learn from their mistakes and improve their products and services.
Working with the industry (banks, building societies, general insurers and life insurers) common themes and barriers to effective complaint handling (particularly internal policies and processes) were identified, possible solutions explored and changes suggested.
While the FCA found that firms had taken steps to improve their complaint handling – both as a result of previous regulatory work and firms’ own initiatives, more could and should be done to deliver fair complaint handling and consistent outcomes for all consumers.
Areas requiring further improvement were identified, with the FCA suggesting that all firms should evaluate their own complaints handling against these findings. So what areas did the review consider required improvement?
Internal processes and procedures
Firms do not always consider the impact on consumers when designing and implementing processes and procedures. Although firms had established their complaint handling operations to comply with the FCA rules in DISP (Dispute Resolution: Complaints Sourcebook), it was found that over reliance on policies and processes could result in a tick-box approach which could limit the ability of staff to exercise good judgment. Final response letters, as required under DISP, were particularly noted for requiring attention as they could be unnecessarily long, confusing and legalistic. Firms should consider, for each complaint, whether the consumer’s outcome and experience demonstrate that the firm has really put the interests of the consumer first.
Inconsistencies in redress offered for financial loss, and for distress and inconvenience
First-point-of-contact staff often offered lower amounts of redress than dedicated or escalated complaints teams. The FCA did not consider that this was by itself a cause for concern so long as first point of contact staff did not attempt to resolve complex or sensitive complaints inappropriately and understood when such complaints should be escalated. Policies on redress should be followed – they weren’t always – to ensure greater consistency. Further, although the subjective nature of distress and inconvenience may make it difficult for firms to issue fail-safe guidance to staff which could make consistency difficult, the FCA considered this should not be used as an excuse for inadequate consideration.
Root cause analysis
Firms take a narrow approach to root cause analysis (which should enable them to determine, and fix, the underlying reason for a complaint), which may affect their awareness of wider issues. Consideration should be given to business model or culture (i.e. strategic) causes, as well as operational causes of complaint with a more holistic approach being taken. The full implications of root cause analysis across different product groups, distribution channels, regions or in other parts of an organisation should be considered. Firms could use wider sources of data (such as customer surveys, social media) in their consideration of root cause analysis.
There are weaknesses in some firms’ management information. Although there was generally good operational data on basic complaints procedure, it could be more insightful and informative in relation to consumer experience and outcomes. Information needed to be balanced and focused on consumers’ experiences rather than the outcome from a firm’s perspective. Reports should not be excessive in length or overly detailed. Trend analysis can identify potential issues, but should also include commentary on actions taken to address the trend. Few firms provide metrics covering the quality of complaint handling or consumer outcomes.
The cross-sector working group (made up of participant firms and selected trade bodies within the review) also made the following recommendations of how complaints processes could be improved, including changes to the FCA rules:
- Dedicated complaint telephone lines should not use numbers that charge consumers more than a basic rate (including mobile users);
- Reconsider the definition of complaint – removing the more subjective ‘material’ distress or ‘material’ inconvenience in the current FCA definition;
- Extend the time frame of the ‘next business day’ rule – for example, extend to one week;
- Remove the ‘non-reportable’ complaints element of the next business day rule so that firms would report all complaints received;
- Review the biannual Complaints Return to include more consumer-
- centric measures;
- Revise the FCA complaints publication – for example, including more consumer-centric measures and contextualised data.
The FCA is now considering these recommendations and will be consulting on any resulting policy changes proposals.
As a result of the review, the FCA is asking all financial firms to review the findings in the report and consider how the findings relate to their own complaint handling operating models, policies and practices. It suggests all firms may like to focus on:
- Whether their complaint handling policies and processes have the interests of consumers at their heart;
- Reviewing the definition of ‘complaint’ and training staff where the definition is not properly understood;
- Whether systems and processes inhibit accurate recording of complaints and consider how this impacts on ability to conduct root cause analysis;
- The observations made about consistency of redress and distress and inconvenience payments;
- The approach to root cause analysis;
- Whether any improvements can be made to management information including messaging, interpretation, quality metrics and use of targets.
The recommendations are directed at all firms, not just dominant retailers, so all firms will need to review their approach to consumer complaints to ensure that they have fast and effective resolution processes in place, and that the consumer is at the heart of such processes. A copy of the review can be obtained from the FCA website.
Greg Standing is a ?partner at Wragge Lawrence Graham & Co LLP