Our discussions with firms suggest that these concerns have increased, and there are a number of questions about how the FOS's approach to complaints will change following the introductions of the Consumer Duty (the "Duty").This article focuses on internal complaint handling processes with the next article focusing on the FOS.
This is the first of two articles considering the complaints handling process and the FOS in light of the Duty. This article focusses on the impact of the Duty on the complaints handling process, as the Duty will also have an impact on those processes. This will include a firm's approach to resolving complaints before they reach FOS and through the feedback loop from complaint outcomes and FOS decisions. The second article will focus on the likely impact of the Duty on complaints that progress to the FOS.
Firms may think complaints handling expectations will not significantly change as they are already expected to consider and carry out the following:
- a client-friendly approach with set timescales and requirements for responding to complaints;
- root cause analysis (which will be key for complying with the Duty);
- larger firms will have reasonably sophisticated MI from which to spot trends (again, very important for complying with the Duty);
- an ever-increasing focus on vulnerable clients (which should have translated into the complaints handling and decision making processes);
- considering previous complaint outcomes / FOS decisions (or patterns) when reviewing and considering current complaints and root cause analysis;
- ensuring complaint communications are sufficiently clear so they are understood by the recipient; and
- identifying any recurring or systemic problems that require remediation, including considering proactive customer contact with clients who have not complained.
Enhanced expectations under the Duty
Firms should already have robust complaints handling procedures in place. That said, the Duty is likely to result in increased expectations being placed on firms and the FCA will have a bigger "stick" with which to beat firms should they fall short (in both a FCA supervisory and enforcement context). The Duty will expand what firms need to do and/or may require enhancements on current requirements. We have set out a list of potential considerations:
- Reviewing current MI to ensure it provides proper insight and will be able to identify relevant trends in light of the higher standards expected under the Duty. The FCA expects firms to review relevant sources of data to assess whether the outcomes experienced by their customers match the obligations expected of them under the Duty. MI must be sufficiently granular to allow firms to ascertain whether certain sub-categories of clients are receiving worse outcomes than others and, if so, why - and whether that is indicative of failure to comply with the Duty;
- Part of the feedback that may be available from complaints handling could include whether assumptions made as part of the product design and governance process are correct (or at least, there is no reason to consider they may be incorrect). For example:
- if a firm decided a certain layout of costs and charges disclosure was clear but a number of customers complained they did not understand it;
- if a certain aspect of a firm's product purports to provide benefits but consumers complain it is not fit for purpose (whether this is an add on or inbuilt within the product (and remember, 'product' also includes 'services' for Duty purposes));
- If part of the customer journey is causing significantly more complaints (as a statistically important proportion), firms should consider whether that part of the journey is acting as expected.
- Firms could review their current complaints data to identify any lessons relevant to implementing the Duty. A sufficient number of complaints relating to a specific team or product may prompt a review to identify why as part of the Duty implementation project. Firms can also use current complaints data to test whether the MI process needs amending.
- Does a firm's root cause analysis process take into account the higher expectations under the Duty and any new requirements? Just because a firm may have carried out this type of analysis previously, it does not mean all relevant considerations will remain the same (or be considered in the same way) after the Duty comes into force.
- Training: this is an obvious area to consider to ensure the relevant teams are sufficiently upskilled to understand the enhanced requirements under the Duty. This does not just mean the complaints team:
- Customer service teams will often be the first team that a complainant encounters. The management of those initial discussions are vital, particularly for vulnerable customers. Complaints recognition and escalation procedures should achieve the expected consumer outcomes;
- Firm's internal governance, policies and procedures will need updating in line with the Duty. A firm's internal justification for why a product is targeted at a certain market, or offers fair value, could become relevant to responding to a complaint. Where this has been agreed by the Board, will (and should) a complaints handler (who may be fairly junior) have the knowledge and authority to challenge that? Firms will need to decide what is expected from complaint handlers and how these type of conclusions should be determined and, if necessary, escalated. This will be important for root cause analysis as well, which highlights the importance of complaint handlers being able to recognise and deal with such challenges.
- What should happen if the firm, and its employees, follow the relevant procedures but it still leads to a negative outcome is for the consumer? The reason for the negative outcome will be important but this may indicate that something has gone wrong. This leads to at least two questions:
- Should the complaint should be upheld? The Duty requires firms to work to deliver good outcomes, but does not guarantee good outcomes. Equally, just because the relevant processes have been followed does not mean a complaint can automatically be rejected.
- Does a negative outcome indicate that there is something wrong with the relevant process and procedure? This should be considered as part of the root cause analysis.
- An existing (and difficult) challenge for large complaints teams is how to ensure consistency of decision making (which requires centralised processes) whilst empowering complaint handlers to consider and decide how the specific circumstances of the consumer should be taken into account. With the Duty being more outcomes than process focussed, this becomes more difficult but also more important.
- Ensure there are no "unreasonable barriers" (as per PRIN 2A.6.2) for consumers who want to make a complaint (and/or the use of "sludge practices" – the deliberate introduction of friction into the consumer journey - as part of the complaint process).
Complaints handling as a service
Firms need to consider their complaints handling process as a separate service that needs to comply with the Duty. This process forms an important part of (hopefully) a small number of consumers' journey with the firm. Most firms will already monitor KPIs, but firms will need to ensure, like MI, that these are fit for purposes. Firms should also reconsider how they communicate with their customers and ensure timely and clear responses are provided.
Does the complaints handling process identify complaints relating to ongoing issues that may be causing more immediate harm to consumers, and deal with them as a priority? Whilst firms may have (depending upon the type of complaint) up to eight weeks to provide a final response, there will be instances where firms should address the issue at hand and then consider whether the complaint has merit. For example, an insurance policy designed to deal with housing issues where a house is no longer safe to live in will mean the customer is, at the very least, temporarily vulnerable if they have nowhere else to live. Similarly, travel insurance policies where someone is taken ill and needs urgent assistance to get treatment or travel home. Whilst technically distinct from responding to complaints, dealing effectively and promptly with ongoing issues provides firms with another opportunity to ensure they are working to provide good outcomes in line with the Duty.
The need to demonstrate good outcomes will mean complaints monitoring and learning lessons is particularly important. If firms identify but fail to remedy harm then they will not be complying with the Duty. This is confirmed by DISP 2A.2.5 R which states "If a firm identifies through complaints, its internal monitoring or from any other source, that retail customers have suffered foreseeable harm as a result of acts or omissions by the firm, it must act in good faith and take appropriate action to rectify the situation, including providing redress where appropriate". A firm that fails to identify harm and / or fails to take appropriate action when it reasonably should, will also fail to comply with the Duty.
If there was any doubt that this proactive approach could extend to paying compensation then this rule makes it abundantly clear. Additionally, the FCA stated in PS 22/9 "We have included new rules and guidance that bolster our existing rules and guidance in our Dispute Resolution (DISP) sourcebook by requiring firms to proactively consider whether remedial action, such as redress, is appropriate where they identify that customers have suffered harm because of the firm’s conduct either through action or inaction". This can put firms in a difficult position with their professional indemnity ("PI") insurers where no 'claim' (under the meaning of the PI policy) has yet been made. We are already familiar with dealing with systemic risks requiring pro-active past business reviews and the Duty should make ever clearer the FCA's expectations and firms' obligations. These should now be well understood by brokers and insurers, but that may not prevent disagreements arising between a firm and its PI insurer when considering if redress should be offered in the absence of a live (or finally determined) complaint or claim.
Whilst not strictly relevant to complaints handling, firms should be aware that where they identify foreseeable harm in a non-complaint scenario, PRIN 2A.10.2 has adapted the current complaint requirements to investigate, as set out at DISP 1.1A.20 R (for MiFID firms) and DISP 1.4.1 (for all firms). It may be helpful for complaint teams to assist in investigating, or at least feeding into, non-complaint scenarios. It will be important to consider complaints data and complaint outcomes as part of any such review.
Experienced complaints handlers are familiar with treating the resolution of customer dissatisfaction as a service and working within their firms to redress instances of crystallised harm and even to root out potential harms. Under the Duty, this should become the norm.
If you have any questions on complaints handling under the consumer duty, or any other Consumer Duty query, please contact the authors.