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2016 FCA Changes to Regulated Complaints Handling

The changes made to the FCA’s complaint handling rules (appearing inthe FCA Handbook – DISP)in June 2016 are well documented and should have been embedded by this time.
In conclusion: 

  • The ‘next business day rule’ has been extended to develop into a ‘three business day rule’ (where sending final response letters (FRLs) are required).
  • Firms must now send a ‘Summary Resolution Communication’ (SRC) in response to all complaints that are solved within three days of receipt.
  • The SRC must confirm that the complaint has been resolved and inform the customer of their rights to refer the matter to the Financial Ombudsman Service (FOS).
  • All complaints must be recorded and submitted to the FCA via their new ‘complaints return’.

The rules are devised to benefit customers by “ensuring that complaints are handled more quickly, easily and transparently”.

Firms no longer have to attempt to resolve complaints on the same day to avoid reporting or sending the customer an FRL. As a result, more time and greater consideration may be given to each individual complaint and the circumstances of the complainant. This should also support a more versatile operating model and relieve some functional triage and case management burdens.
Firms lose the ability to resolve complaints without reporting them; nevertheless, where all complaints are logged and reported, firms should have access to management information (MI) that better demonstrates their complaint population, and therefore root cause analysis (RCA) should be more robust- revealing a more accurate understanding of the firm’s performance.
On the face of it, there are positives for customers and the industry, but how are firms coping with the changes?
WHAT HAVE BEEN THE PRACTICAL IMPLICATIONS FOR FIRMS?
Theoretically, where the firm is positive that complaints, which were being closed by the next business day, were identified and resolved fairly (and in-line with regulatory expectations), then the shifting to the new rules should certainly be more straightforward. In this example, the biggest change for the complaint handling department is logging the grievance correctly, and issuing an SRC to the client. This, however, still results in an immediate need to present systems training to staff, and to update procedures to ensure SRCs are issued to customers in the correct manner.
values compliance consultant london compliance framework annual monitoring planThe new reporting rules mean that there is now a record of every dissatisfaction handled by the firm, and therefore fair customer outcomes and compliant complaint handling will need to be demonstrable in each instances. This has exposed some firms’ capability to appropriately identify and handle complaints in their frontline and client support departments, or those who do not handle complaints on a regular basis. Reasons for this typically include:.

  • A training or capabilities gap.
  • Conflicting incentive schemes.
  • Inadequate processes and procedures.
  • Inadequate back up and oversight.
  • Issues with company conduct.

Nevertheless, this has also led to the inherent expectation that frontline staff- who might receive complaints infrequently- are able to serve as skilled complaint handlers. For some staff, this will feel like a change to their role, so firms ought to provide the appropriate support to individuals for them to execute effective complaint handling that meets regulatory criteria.
Aside from this, the regulatory definition of a complaint- and a firm’s treatment of it- has entered the spotlight. Previously, ‘minor’ or ‘immaterial’ complaints could be quickly dealt with and resolved without too much concern for whether the regulatory definition of a complaint had been met. Now that all complaints are recorded, firms need to be confident that complaints are being identified in line with regulatory expectations, resulting in ‘materiality’ coming into question. This serves to make the understanding of what is and isn’t a complaint an intrinsic part of the process, and comes at the same time as an increased reliance on non-skilled frontline staff to perform complaint handling.
These changes have also meant that firms’ operating models and controls have had to be augmented, since added departments and complaint channels have to be more closely monitored. Some firms have miscalculated the extent of the required changes.
HOW CAN FIRMS ADDRESS THE CURRENT CHALLENGES?
Firms should revaluate their complaint handling operating model whilst taking into consideration the FCA’s expectations around a ‘fair customer outcome – at the earliest feasible opportunity’, and whilst also reviewing their “risk appetite”. They should be comfortable that complaints will be suitably identified and handled in all frontline area, with appropriate evidence of good practice recorded and retained.
No matter what process for complaints a firm deems appropriate, as a minimum, complaints ought to be identified correctly by frontline staff, so a level of training, guidance and support is needed on an immediate and ongoing basis to mitigate ‘knowledge gap’ and ‘skill fade’ possibilities where complaint handling is not the day-to-day role.
The expectancies of staff and the firm should be assessed for you to gain insight on how to align the two. As part of its suite of training pertaining to complaints, firms should also aim to improve their personnel’s contextual understanding around why effective complaint handling is critical across the industry today. They could also use this opportunity to determine their complaint handling culture, and reaffirming the crucial elements of treating customers fairly, where appropriate.
Firms should ensure that they have a clear and, most significantly, consistent definition of a complaint which gives context and meaning to the idea of ‘materiality’, using a broad spread of real examples in line with their risk appetite.
Firms’ operational controls under the former rules (including quality assurance (QA), training & competence (T&C), MI, RCA and governance arrangements) may not give the full understanding of complaint handling across the company, causing an increased risk of unjust customer outcomes and regulatory breaches.
Therefore, in order for the firm to demonstrate compliant complaint handling to the regulator, these operational controls ought to be appropriately broadened (while ensuring a risk-based approach) to give a correct view of complaint handling in all areas. This brings about updated requirements for QA and RCA frameworks, T&C schemes, MI reports, scorecards, training programmes, governance structures and agendas; to name but a few.
Ultimately, firms should be satisfied that their systems and infrastructure allows them to record, report and handle complaints in line with regulatory expectations. This means ensuring that calls are recorded (i.e. interactions can be proven), all relevant individuals have access to the firm’s complaint handling system and the system has the ability to support effective MI and RCA.
A CONTINUED EXPERIENCE HEADING TOWARDS COMPLAINTS EXCELLENCE.
As well as the initial challenges that were projected at the outset of PS15/ 19 and during the prior consultation, there have been some inadvertent issues arising through the reasonable implementation of the rules which are more nuanced and harder for firms to diagnose.
Firms wishing to gain assurance that they are reacting appropriately to these challenges can examine their procedure to the areas above to give themselves a richer picture. It is needless to say perfectly natural that tasks should arise when such a significant change is carried out, nevertheless it is the ability to react to these challenges with appropriate and proportionate action that will differentiate firms in the marketplace.
 
Lee Werrell Chartered FCSI
Compliance Doctor
compliance consultants london specialist remedial risk management fca handbook

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