4.3.5 Complaints: the Financial Ombudsman Service (FOS)
A further inevitability of financial services dealings is that there will be some disputes between customers and the firms they deal with. During its existence the FSA laid down various requirements for the processes for dealing with disputes and these remain an integral part of the FCA’s Treating Customers Fairly (TCF) regime.
To deal with disputes firms are required to have in place written procedures to deal with all complaints in whatever way they are made (i.e. written or oral), and regardless of whether or not the complaint appears to be justified.
Although disputes may first be dealt with by the firms themselves, complainants have the right, if they remain unsatisfied with the outcome, to go to the Financial Ombudsman Service (FOS), which can independently review the case.
The first part of the process of dealing with a dispute is to determine whether it arises from an eligible complainant. These comprise the following retail customers:
- small businesses (‘micro-enterprises’), with fewer than 10 employees and with an annual turnover not exceeding the equivalent of €2 million
- the trustee of a trust, where the value of the trust is less than £1 million
- charities with an annual income of less than £1 million.
These are deemed to be less financially sophisticated and hence more vulnerable than other complainants. Disputes arising from these parties must be dealt with in accordance with the firm’s procedures. There is no obligation by the firm to apply these same procedures where disputes arise with those who are not eligible complainants.
The process and timings that apply to the internal investigation of disputes are subject to a number of requirements.
As regards the process, the complaint must be investigated by someone who both has the competence to make a judgement on the matter and who has not been involved in the business area from which the dispute has arisen. Additionally, the person who responds to the complainant, after the internal investigation has been completed, must be empowered to make any required settlement with the complainant and to arrange any required compensation.
As regards timings, a series of minimum time periods for processing a complaint are laid down. Originally, and until September 2011, it was a two-stage process. The complaint had to be initially acknowledged within 5 business days, and firms had up to 8 weeks within which to provide the complainant with their final response. From September 2011, however, this two-stage process was abolished. Delays in response beyond this 8-week period must be explained to the complainant.
Those eligible complainants who are dissatisfied with the way that the financial services firm has dealt with their dispute can escalate the matter to the FOS, the independent body established to resolve outstanding disputes relating to financial services business. The service of the Financial Ombudsman is free to complainants.
The business of the FOS splits into two separate jurisdictions. FOS’s compulsory jurisdiction relates to those unresolved disputes from eligible complainants that were not adequately resolved by the FCA-authorised firms. Additionally, the FOS has a voluntary jurisdiction which handles those disputes that do not fall within its compulsory jurisdiction. These can include disputes relating to firms not regulated by the FCA – for example, certain credit card business activities.
The important distinction between the compulsory and voluntary jurisdictions is that firms must accept the compulsory jurisdiction. There is no similar requirement for firms to accept voluntary jurisdictions – although customers still then have the option to take civil action in court.
If the FOS rules in favour of the complainant, it can require the culpable firm to provide financial compensation. The original maximum compensation payable was £100,000. Following an FSA review of the complaints system (FSA, 2011e), however, an increase of the limit to £150,000 took effect from 2012. However, if the FOS considers that an amount in excess of £150,000 is justified, it can recommend (but not insist) that the firm pays out the assessed higher sum.
The FSA review also set out further proposals for the procedures for FOS to follow when handling complaints. These took effect from September 2011 and included:
- the aforementioned abolition of the two-stage process for complaints handling
- the provision of detailed guidance on the procedures firms should have in place to take account of FOS’s decisions and other guidance when resolving complaints
- the restatement of the guidance on the requirement on firms to undertake root cause analysis of the complaints they receive and take action as appropriate
- the requirement for firms to nominate a senior individual to have responsibility for the complaints-handling function within the firm.
Two final facets of the complaints ‘safety net’ introduced in 2012 are super-complaints and mass-detriment references which may be made to the FCA.
Super-complaints can be made by consumer bodies in respect of competition and consumer issues which they deem to be widely, and significantly, damaging to the interests of consumers. One recent super-complaint was made by the consumer body Which? in 2015, in respect of the pricing practices of supermarkets in the UK.
Mass-detriment references may be made by the FOS – and also by financial firms – where they deem that the practices and regulatory failures of a firm have, or potentially have, been to the disadvantage of consumers.