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August update on the world of Financial Services Regulatory Complaints

15 August 2024

In this first update in a new series, our Regulatory Consulting team take a look at the latest from the FOS and FCA when it comes to complaints and complaint handling for Financial Services firms.

In July 2024, the Financial Ombudsman Service (FOS) released its latest newsletter, revealing a continuing rise in complaints referred to the service, particularly in the banking sector, where cases reached a ten-year high. Key issues included poor customer service, authorised payment scams, and specifically dissatisfaction with travel insurance claims. 

Abby Thomas, Chief Executive and Chief Ombudsman, also addressed some of these concerns in a speech at the Financial Conduct Authority's (FCA) recent Consumer Duty event, emphasising the service's commitment to fair dispute resolution and acknowledging improvements under the Consumer Duty. (see here for our write-up of the key points from the FCA's event)

Additionally, recently the FCA announced an extension for firms to respond to motor finance complaints involving discretionary commission arrangements, providing more time for thorough investigations and extending the referral period to the FOS, aiming to enhance consumer protection. While this impacts a specific sector, there remain lessons to be taken by all firms as to the nature of the issues the FCA is reviewing, but importantly about how it is using its powers to drive how complaints should be handled.

Latest newsletter from the Financial Ombudsman Service

The Financial Ombudsman Service (FOS) released its latest newsletter on 18 July, highlighting significant developments in financial complaints and related insights from the 2023/24 financial year. The complaints data is released separately but between the full publication and the newsletter, the FOS revealed a substantial increase in complaints across various financial products, with the most notable rise seen in the banking sector.

Key Highlights:

  1. Banking and Payment Complaints: The number of complaints in this category reached a 10-year high, with 80,137 cases reported, a significant increase from 61,995 in the previous year. Major issues included concerns about current accounts, credit cards, and fraud, particularly authorised push payment (APP) scams. This trend reflects growing consumer frustration with issues like poor customer service and irresponsible lending practices.
  2. Travel Insurance: Complaints about travel insurance surged to their highest levels since the pandemic, driven by dissatisfaction with claim denials. The FOS received 4,466 new complaints in this area, up from 3,745 the previous year.
  3. Involvement of Professional Representatives: A notable portion of the complaints (25%) was brought by claims management companies (CMCs) and professional representatives. The FOS noted both good and bad practices among these representatives and provided a reminder that it has proposed introducing case fees for presentative to ensure a fairer distribution of costs.
  4. Product-Specific Data: The most complained about products included current accounts (30,635 complaints), credit cards (24,402 complaints), and hire purchase (motor) agreements (21,441 complaints). There was also a significant increase in fraud and scam complaints, highlighting ongoing consumer vulnerabilities.

So what we can take away from this? Well, overall the uphold rate for complaints is at 37%, which goes to show that, despite how it might feel at times, the FOS is not always finding in favour of complainants. But it is clear that customers are more and more inclined to refer matters when they are not satisfied with the outcome. Firms need to continue to ensure that they are doing their best to resolve complaints at source, and that the relevant teams that do so, are equipped with the skills and knowledge. 

We still see complaints being treated as an adversarial part of the business but as we have seen from how the FOS and FCA have talked about Consumer Duty, they are a wider window to how the firm is supporting and communicating with its customers. There is an expectation that more should be done to learn from complaints and a strong business should see it as a good opportunity to learn from this insight. 

Abby Thomas speaks at FCA event

On 31 July 2024, Abby Thomas, Chief Executive and Chief Ombudsman of the Financial Ombudsman Service, delivered a keynote speech at an FCA event marking the first anniversary of the Consumer Duty. The speech highlighted the impact of the Consumer Duty on resolving financial complaints and emphasised the service's commitment to fair and impartial resolution of disputes.

Thomas outlined the progress made since the implementation of the Consumer Duty, which aims to ensure financial firms prioritise consumer needs and provide higher standards of care. She noted that the Ombudsman Service has observed a positive shift in how firms handle complaints, with increased efforts to resolve issues promptly and fairly. However, challenges remain, particularly in addressing complex cases and ensuring consistent treatment across all financial products and services.

A key focus of the speech was on the role of the Ombudsman in supporting consumers during a time of economic uncertainty. Thomas stressed the importance of financial firms being proactive in their dealings with customers, especially regarding issues like fraud and scams, unaffordable lending, and poor customer service. The speech also addressed the need for continuous improvement in the complaints-handling processes of financial firms, as well as the importance of transparency and accountability.

The Consumer Duty has brought about significant changes in the financial landscape, and Thomas's speech reaffirmed the Ombudsman Service's dedication to helping consumers navigate these changes and secure fair outcomes in their financial dealings

FCA's Latest Update on Motor Finance Complaints: Extending Protections and Response Times

On 30 July 2024, the FCA released an update addressing motor finance complaints, in relation to discretionary commission arrangements (DCAs). 

In January 2024, the FCA announced that it was launching a Skilled Person Review of historical motor finance commission arrangements across several firms. In the meantime it paused the timelines within which firms needed to respond to complaints and for when complaints could be referred to the FOS. The FCA has said it intended to publish its findings in September 2024, with an expectation that some form of redress scheme would be the outcome.

In its latest update, the FCA has announced that there will be a delay in the publication of its findings, with it now aiming for May 2025, and that a result it is extending the pause on the requirement for firms to issue final responses to motor finance complaints involving DCAs until 4 December 2025. This decision aims to provide firms with adequate time to investigate and address complex complaints thoroughly, ensuring fair treatment for consumers.

The delay to concluding the review was something that those in the industry had been expecting for some time, with rumours that the Skilled Person needed more time to complete their work. In addition, as acknowledged by the FCA, action taken by Barclay's Partner Finance to seek a judicial review of a FOS Final Decision as well as other civil action, means that it is appropriate for the FCA to wait for and consider the outcome from the Courts. This is all in the context of Consumer Champions continuing to drive complaints to Firms despite the pause.

The update includes several key provisions:

  1. Extended Timeframe for Final Responses: The FCA has paused the eight-week deadline for firms to issue final responses to DCA-related complaints. This extension now lasts for 37 weeks, allowing firms to conduct more comprehensive investigations.
  2. Increased Referral Period: Consumers now have an extended period to refer their complaints to the Financial Ombudsman Service. Instead of the standard six months, they now have up to 15 months from the date of the firm's final response to lodge their complaint. This extension applies to complaints where final responses were issued between 12 July 2023, and 10 January 2024, and will continue for those issued between 11 January 11 and 20 November 2024.
  3. Record-Keeping Requirements: Firms are mandated to maintain and preserve records relevant to DCA-related complaints. This requirement ensures that all pertinent information is available for review during the complaint investigation process.
  4. Consumer Communication: Firms must keep consumers informed about the status of their complaints, particularly explaining the reasons for any delays due to the FCA's temporary rules. This transparency is crucial for maintaining consumer trust and ensuring they are aware of their rights and options.
  5. Consultation and Feedback: The FCA has opened a consultation process, allowing stakeholders to provide feedback on these measures. The deadline for submissions is 28 August 2024. This feedback will help the FCA refine its approach and ensure that the final rules adequately protect consumers while maintaining a fair and functional motor finance market.

The FCA's notes that this reflects its commitment to consumer protection and the fair handling of complaints. By extending response times and enhancing communication requirements, the FCA shows that it is at least aiming to ensure that all parties involved in motor finance agreements are treated justly and transparently, although both sides may feel that the delay is unhelpful.

With a team of experts working across the full range of the financial services sector, DWF is well placed to advise firms on the complaints handling process and how firms can adapt their current policies and procedures to ensure compliance. 

Our integrated legal and 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 in order to meet your ongoing regulatory obligations.

Written by Luis Hernandez with thanks to Avani Patel

 

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