Although some in Financial Services may at times disagree, the current redress framework is generally considered to handle individual complaints in a satisfactory manner. However, it is clear that it faces challenges when faced with sizeable redress events, which are a key driver for increased complaint volumes, especially when firms fail to address harm proactively. The Call for Input, published jointly by the Financial Conduct Authority (FCA) and the Financial Ombudsman Service (FOS) is seeking gather views on how to modernise the framework, improve outcomes, control mass redress events, and ensure regulatory collaboration among stakeholders.
This comes hot off the heels of Rachel Reeves, Chancellor of the Exchequer, also addressing the importance of redress in her first Mansion House speech on 14 November 2024, emphasising the need for organisations to work with the FCA and FOS to better serve consumers and provide greater stability for firms to invest and improve. Further details of the speech can be found at FCA statement on the Chancellor’s Mansion House speech | FCA.
In this article, we break down some of the key reasons for why there is a need to review the way that redress is managed in the UK financial services sector, and what the options that the FCA and FOS have put forward for consideration.
Issues to address
1. Mass redress events – currently there are no rules or guidance in the FCA Handbook as to how to proactively handle a mass redress event, apart from where one of those events has reached a point where special rules have been put in place i.e. for Payment Protection Insurance (PPI) complaint, where the FCA invokes its powers to put in place a specific redress scheme.
This causes challenges as such events can lead to operational difficulties within individual firms, which in turn risks ineffective complaints-handling that can then lead to high volumes of complaints being referred to the FOS. It should be acknowledged that this is in a landscape where Claims Management Companies (CMCs) and Consumer journalists / champions, are more clued up and alive than ever to spot the next big ‘event’. With the general public also being more aware of their rights to complain, and with many already having had experience or the events, they are also more likely to listen to calls to act when there is a perceived issue.
This leaves firms in a similar position where they have to be ready to react, both from an operational perspective, as well from technical / regulatory perspective to understand if there is indeed redress due to customers. While at the same time, the regulatory framework provides little guidance to how to manage these types of situations other than expecting the same for Joe Bloggs complaining about receiving poor service on their latest visit into a branch.
2. FCA/FOS cooperation – Stakeholders have expressed challenges in how they can express concerns to the FCA / FOS about issues that may have broader implications.
While there is a long-standing relationship and co-operation between the two organisations, there has also often been a desire to keep a clear delineation between what each of them do. For example, the FCA will often say that it cannot comment on FOS outcomes, in particular on individual cases, even where it is clear to everyone, including the industry, that a mass redress event is brewing. This was the case with the PPI event, where the FOS was dealing with ever-increasing volumes of complaints over a long period of time, with the FCA slow to provide any meaningful guidance to firms or indeed the FOS on what it expected.
As a result of these challenges, and given the FCA’s recent shift to outcomes-focused regulation, there is now a call on exploring potential changes to the framework to promote early identification and addressing issues promptly. There is also an expectation that the way FCA and FOS work and collaborate needs to improve to provide greater clarity and support to the consumers and to industry.
Options for change
The Call for Input has set out both short and medium-term options, with shorter options achieved through FCA / FOS rules and longer-term options potentially requiring legislative or other changes.
Stage 1 – Short -term
- Complaints Handling: Firm are to act promptly to prevent mass complaints, acting in good faith under the Consumer Duty and DISP, ensuring redress is paid appropriately when harm is identified.
- Stage Complaints Process: Consider reintroducing 2-stage process for handling complaints to reduce FOS referrals, with criteria for final decision requests to be reconsidered.
- Professional Representatives (PRs) Evidence submission: Ensure complaints are well evidenced and articulated, with PRs to be charged a fee of £250 per complaint, reduced to £75 if the complaint is in favour of the consumer.
- Dismissal Grounds expansion: Consider amendments to the DISP rules and broadening dismissal rules for mass complaints or redress events.
- Time limits: Amendment of current time limits for claim referrals, to address firms concerns about long-term liability for historical issues.
Stage 2 – Long term
Given that the FCA and FOS are independent bodies, the FCA does not direct decisions but can assist with rule interpretations. Although there are existing procedures through the Wider Implications Framework for the two bodies to engage on matters in the financial services industry, it is recognised that proposals such as allowing the FOS to pause DISP rules whilst the regulator considers matters, to ensure efficient time and resource of firms and customers could be welcomed.
There is also a consideration for the FCA to pause complaint handling requirements in DISP for mass redress events, to carry out diagnostic work and ensure consistent outcomes. If the FCA decides to take out a 404 industry-wide redress scheme, it might be more appropriate for cases to be returned to firms with reduced FOS fees.
Given the reference made by Rachel Reeves on the redress system, this appears to be very much on the radar of the FCA and it has requested observations by 30 January 2025. A summary of responses and next steps is due to be published in Q1 2025. We very much look forward to seeing how this develops further.
How we can help
With a team of experts working across the full range of the financial services sector, DWF is well placed to advise firms on the redress/complaints handling process and how firms can adapt their current policies and procedures to ensure compliance.
Our regulatory consulting team can help you navigate through the complex and evolving FCA requirements, by deploying knowledge and resources to support the implementation of stronger requirements.
Please feel free to get in touch with one of our team to discuss any questions you may have or to consider what you support you may need at this time to meet your ongoing regulatory obligations.
