Have firms underestimated the implications of the PS15 / 19 complaints rules implemented in June 2016?

Posted: 4th July 2017

The changes made to the FCA’s complaint handling rules in June 2016 are well documented. In summary:

• The ‘next business day rule’ has been extended to become a ‘three business day rule’ (where sending final response letters (FRLs) are concerned)
• Firms must now send a ‘summary resolution communication’ (SRC) in response to all complaints that are resolved 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 designed 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 in order to avoid reporting or sending the customer an FRL. As a result, more time and greater consideration can be given to each individual complaint and the circumstances of the complainant. This should also support a more flexible operating model and relieve some operational triage and case management pressures.

Firms lose the opportunity to resolve complaints without reporting them; however, where all complaints are logged and reported, firms should have access to management information (MI) that better reflects their complaint population, and therefore root cause analysis (RCA) ought to be more robust – revealing a more accurate picture 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?

In theory, where the firm is confident that complaints, which were being closed by the next business day, were identified and resolved fairly (and in-line with regulatory expectations), then the transition to the new rules should be more straightforward. In this instance, the biggest change for the complaint handling department is logging the complaint appropriately, and issuing an SRC to the customer. This, however, still results in an immediate need to roll out systems training to staff, and to update processes to ensure SRCs are issued to customers in the correct manner.

The new reporting rules mean that there is now a record of every complaint handled by the firm, and therefore fair customer outcomes and compliant complaint handling needs to be demonstrable in all instances. This has exposed some firms’ ability to appropriately identify and handle complaints in their frontline and customer services departments, or those who do not handle complaints on a regular basis. Reasons for this typically include:

• A training or capability gap
• Conflicting incentive schemes
• Inadequate processes and procedures
• Inadequate support and oversight
• Issues with company culture

However, this has also resulted in the inherent expectation that frontline staff – who might receive complaints infrequently – are able to act as skilled complaint handlers. For some staff members, this will feel like a change to their role, so firms need to provide the appropriate support to individuals in order for them to execute effective complaint handling that meets regulatory requirements.

In addition to this, the regulatory definition of a complaint – and a firm’s application of it – has come into 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 additional departments and complaint channels need to be more closely monitored. Some firms have underestimated the extent of the required changes.

How can firms respond to the current challenges?

Firms should revaluate their complaint handling operating model whilst considering the FCA’s expectations around a ‘fair customer outcome - at the earliest possible opportunity’, and whilst also reviewing their risk appetite. They should be confident that complaints will be appropriately identified and handled in all frontline areas, with relevant evidence of good practice captured and retained.

No matter what process for complaints firms deem appropriate, as a minimum, complaints need to be identified correctly by frontline staff, so a level of training, guidance and support is required on an immediate and ongoing basis to mitigate ‘knowledge gap’ and ‘skill fade’ risks where complaint handling is not the day-to-day role.

The expectations of staff and the firm should be assessed in order to gain insight on how to align the two. As part of its suite of training related to complaints, firms should also aim to improve their staff members’ contextual awareness around why effective complaint handling is vital across the industry today. They could also use this opportunity to evaluate their complaint handling culture, and reaffirming the key elements of treating customers fairly, where appropriate.

Firms should ensure that they have a clear and, most importantly, 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 previous rules (including quality assurance (QA), training & competence (T&C), MI, RCA and governance arrangements) may no longer give the full picture of complaint handling across the company, resulting in an increased risk of unfair customer outcomes and regulatory breaches.

Therefore, in order for the firm to demonstrate compliant complaint handling to the regulator, these operational controls need to be appropriately broadened (while ensuring a risk-based approach) to give an accurate view of complaint handling in all areas. This results in updated requirements for QA and RCA frameworks, T&C schemes, MI reports, scorecards, training programmes, governance structures and agendas – to name a few.

Finally, firms need to be satisfied that 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 evidenced), all relevant individuals have access to the firm’s complaint handling system and the system is able to support effective MI and RCA.

A continued journey 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 practical implementation of the rules which are more nuanced and harder for firms to diagnose.

Firms wishing to gain assurance that they are responding appropriately to these challenges can assess their approach to the areas above to give themselves a fuller picture. It is of course perfectly natural that challenges should arise when such a significant change is implemented, however it is the ability to react to these challenges with appropriate and proportionate action that will differentiate firms in the market.