Financial Conduct Authority (FCA) - Call for input

Financial Conduct Authority (FCA) - Call for input

The FCA have published a call for input in relation to modernising the redress system by the 30th January 2025.

Whilst the current redress framework works for individual customers, it has been identified that this approach may not be suitable for mass redress events. Mass redress events are when a large number of complaints are received in relation to the same issue, these complaints can be submitted via professional representatives such as claims management companies or solicitors. Professional representatives have had a large impact on mass redress events which can result in overall lower redress being paid to consumers overall.

It is important that in these scenarios firms identify such issues early and proactively address harm where it occurs, to minimalise escalations to the Financial Ombudsman Service (FOS). The FOS have also announced that they intend to charge professional representative £250 to help address some of the behaviours seen by firms, sending complaints to their services where firms have acted correctly.

The Dispute Resolution Complaints sourcebook (DISP) outlines complaint handling rules for firms and the rules on how the FOS consider complaints. DISP was last reviewed in 2014 and the FCA have identified that the current rules do not account for the current complaints landscape.

There have been two significant changes since the last review, these being mass redress events and the role played by personal representatives. The FCA want to understand core questions surrounding these two changes and invite views from consumers and groups representing consumer interests, policy makers and other regulatory bodies and firms and industry bodies.

Purpose of the call for input

The FCA want to address the challenges and complexities surrounding mass redress events in the financial services sectors, particularly regarding consumer complaints, firms, and FOS. These events typically involve large numbers of consumers and significant amounts of redress. Currently, the FCA Handbook does not define a "mass redress event," but the text suggests that introducing such a definition could help identify and manage these situations earlier to prevent systemic issues.

Mass redress events can cause operational difficulties for firms, leading to delays in complaint handling and potentially overwhelming FOS, which may not have enough information to resolve complaints efficiently. There are concerns about professional representative involved in these events, as they sometimes charge high fees, as complaints may lack proper evidence or substantiation.

The call for input also highlights the importance of early identification of issues with wider implications, allowing for better risk management before problems escalate. It also points out the FCA’s shift toward an outcomes-focused regulatory approach, which is less prescriptive and more reliant on judgment, creating challenges for consistent interpretation by both firms and FOS.

Finally, the call for input also seeks feedback on whether a definition for mass redress events should be introduced and how to address the identified challenges, including ensuring regulatory cooperation between the FCA and FOS to manage mass redress events effectively.

FCA objectives

The FCA also want the call for input to help them further it’s primary and secondary objectives.

The FCAs primary objectives are consumer protection, market integrity, and competition. Managing mass redress events more effectively would help improve consumer outcomes by ensuring faster, more consistent access to redress and preventing systemic risks, which could harm market integrity.

The FCAs secondary objective which came into force on the 29th August 2024 focuses on international competitiveness and growth of the UK economy. If the redress system is seen as costly for firms, it could undermine the UK financial market's competitiveness. By improving the redress process, the FCA can help ensure firms manage complaints efficiently, reducing operational strain on FOS and mitigating the risk of firm failures. This approach supports trust and confidence in the financial markets, contributing to sustainable economic growth and international competitiveness.

Options for change

Within the paper published, the FCA divide their primary and secondary objectives out into shorter and medium-term options that could be achieved via changes to the FCA and FOS rules, and longer-term solutions that may require legislative or other changes. If it is decided that changes are needed, the FCA plans to consult on these changes in the first half of 2025.

The short- and medium-term changes that the FCA and FOS can make to the rules and process have been broken down into eight different categories.

Proactive Firm Action: Firms should take proactive steps to identify and resolve harm to prevent mass redress events. Regular updates and early action on complaints can reduce large volumes. The FCA plans to provide guidance on identifying and addressing harm under Consumer Duty.

Complaint Resolution before FOS Involvement: Firms must resolve complaints within set timelines or explain delays. While a two stage complaints process was previously used (firms could send an initial response within 8 weeks and were not required to provide a final response unless the complainant remained dissatisfied), this may be revisited under the Consumer Duty, but only if it ensures fair consumer outcomes. Views are sought on whether such a process should be reintroduced.

Fair and Effective Complaints Handling: The goal is for firms to resolve complaints effectively and promptly, reducing the need for FOS involvement. Proposals include restricting requests for final decisions to specific circumstances, such as new evidence or factual inaccuracies.

Complaints Made by Professional Representatives: Concerns exist about the quality of complaints submitted by professional representatives, which often lack proper evidence. The FCA is considering additional rules to ensure complaints from these types of firms are substantiated before reaching FOS.

Amendments to FOS Fees: The FOS are proposing to charge professional representatives for complaints, with a reduced fee if the outcome favours the consumer. This change aims to reduce industry costs and improve fairness in funding.

Fair and Reasonable Assessments: The FOS must consider what is "fair and reasonable" when deciding complaints. There are concerns about consistency with regulators, and views are sought on additional factors FOS should consider.

Broadening Dismissal Grounds: The FOS may be allowed to dismiss certain complaints, particularly those related to mass redress events or industry-wide issues, to reduce resource strain.

Time Limits for Complaints: Complaints must be made within 6 months of a final response. However, there is no longstop for complaints related to long-term products, such as pensions, which creates uncertainty for firms. This issue may be addressed in future regulatory updates.

Long Term Changes

This focuses on improving the handling of mass redress events. The FCA acknowledges that both itself and FOS are independent bodies and the FCA is limited in directing the Ombudsman; However, the FCA can offer its views on FCA rule interpretation for cases with broader implications.

The FCA is exploring the idea of pausing complaint handling requirements during mass redress events, while it conducts investigations to avoid inconsistent outcomes. Additionally, the FCA may consider extending complaint time limits and adjusting case fees.

FCA and FOS co-operation

The call for action also outlines how the FCA can work better with stakeholders and how the FCA and FOS should work together on six key issues.

Collaboration and Data Sharing: The re-establishment of the Wider Implications Framework (WIF) in 2022 allows regulatory bodies like the FCA, and FOS to work together on systemic issues. This collaboration aims to identify redress matters earlier and ensure that risks are mitigated promptly.

Current Reporting Challenges: Although the FCA collects data on redress payments through complaints returns, the information is often outdated and not specific enough to pinpoint root causes or identify emerging issues in real time. The FCA is exploring ways to improve the reporting process and make it more proactive, potentially expanding its guidance on when and how firms should notify the FCA about redress events.

Engagement with Professional Representatives: The FCA is exploring ways to enhance the interaction between professional representatives, firms, and regulators, ensuring that potential issues are reported promptly to avoid delays in addressing widespread problems.

Wider Implications: Issues with wider implications can affect a large number of consumers or pose risks to market stability, including firm failures. The FCA is seeking input on how to better identify these issues, considering factors like the number of affected consumers and the financial implications.

Cooperation and Frameworks: The document outlines the current frameworks for cooperation, with a focus on the WIF, which helps manage risks and ensures effective collaboration between key bodies such as the FCA and FOS. It also emphasises the need for prompt and consistent communication among stakeholders.

Stakeholder Engagement: The FCA highlights the importance of stakeholder engagement, and place on focus on things such as statutory panels and consultations. The aim is to improve transparency and ensure that external viewpoints contribute to shaping regulatory responses.