Can we expect changes to the complaint handling and redress system?

The Call for Input (CFI) identified that the existing rules do not reflect the realities of the current complaints landscape, as the rules in the Dispute Resolution: Complaints sourcebook (DISP) were last reviewed in 2014. The FCA and the FOS are seeking to update these rules up to ensure they are fit for purpose.

The goals of the CFI are to ensure consumers receive appropriate redress when things go wrong, to help firms identify and proactively address harm and to enhance collaboration between the FCA and the FOS.

Options for regulatory change

The CFI suggests a two-stage approach to modernise the redress system, which captures the options for change along with relevant questions that can be answered to provide feedback.

Stage 1: Short to medium-term changes

Helping firms to identify and proactively address harm.

Through DISP and the Consumer Duty rules, firms are expected to take reasonable steps to identify and remedy systemic problems. The FCA plans to publish a report in Q4 2024 highlighting examples of good practice for firms when using complaints data to identify existing harm.

The CFI considers whether further DISP guidance or rules are needed to help firms effectively identify and proactively address harm, for example by implementing a proactive past business review.

Making sure that firms resolve complaints fairly, reducing the need for consumers and their representatives to refer matters to the FOS.

The CFI seeks options to give firms an opportunity to resolve complaints fairly before cases are referred to the FOS. Previously firms could operate a two-stage complaints process, which allowed consumers to appeal a decision before going to the FOS.

The Consumer Duty now sets an ongoing requirement for firms to act in good faith and rectify matters which have caused foreseeable harm. In light of this, the CFI asks whether a two-stage process could help firms effectively resolve complaints without consumers referring complaints to the FOS.

Making sure that firms resolve complaints effectively, reducing the need for consumers and their representatives to escalate matters for an ombudsman’s final decision.

Firms and consumers can request an Ombudsman’s final decision where they disagree with the initial assessment of their FOS case. Most final decisions do not change the outcome because investigators follow an approach informed by previously determined FOS cases.

The CFI considers whether an Ombudsman’s final decision should be limited to specific circumstances, for example, where new evidence is submitted, a factual inaccuracy is identified or where the FOS has not yet established its position.

Where complainants are represented by a PR, making sure that complaints to firms and to the FOS are properly evidenced and the FOS is the right body to resolve the matter.

The CFI considers whether the rules in DISP should include different requirements for complaints brought by PRs. Examples include:

• The FOS could decide not to accept a complaint until it has been well evidenced.
• The FOS could dismiss complaints collectively without individual consideration where PRs send poorly evidenced cases in bulk.

Amending FOS case fee rules.

The CFI asks whether amendments to the FOS case fee rules should be considered for mass redress events. The FOS has already set out plans to reduce the cost of its service in future years.

In its recent consultation paper, the FOS said that fewer complaints with PRs were upheld versus consumers who complained directly without such representation. The FOS proposed to introduce a £250 fee for individual PR cases, reduced to £75 if the case is upheld in the consumer’s favour.

Considering what is fair and reasonable.

The DISP rules outline that the FOS must decide what is ‘fair and reasonable’ in individual cases. This assessment must take into account relevant law and regulations, regulator’s rules, guidance and standards, codes of practice and (where appropriate) good industry practice.

Industry stakeholders raised concerns that the words ‘where appropriate’ suggest that good industry practice is less relevant than the other factors. The CFI asks if there are any other additional or different factors that the FOS should consider when deciding what is fair and reasonable.

Broadening the dismissal grounds in DISP.

The FOS can only dismiss a complaint in limited circumstances. However, due to regulatory changes[1], the FOS could consider widening its dismissal grounds. For example:

• Where the FCA has decided to implement an industry‑wide consumer redress scheme.
• Where groups of complaints are referred to the FCA for regulatory action to be considered, or to law enforcement for a criminal investigation, to collectively resolve the matters at dispute.

Reviewing the time limits for referring complaints to the FOS.

The CFI asks whether the time limits for referring complaints to the FOS should be reviewed. Complaints must be made:

• Within six months of a firm’s final response or summary resolution.
• Within six years from the event being complained about, or (if later) three years from when the customer knew or ought reasonably to have known they had cause to complain.

The CFI highlights that there is no set time limit where a consumer remains unaware that they have cause to complain. This allows consumers to complain about long term products, such as pensions. However, the absence of a long stop creates uncertainty for firms.

Stage 2: Longer term changes

Improving co‑operation on matters with wider implications.

The CFI stresses the operational independence of the FCA and the FOS. It recognises however that it may be desirable for the FOS to have power to ‘stop the clock’ and pause the application of DISP rules to certain cases while the regulator considers matters.

Mitigating the impact of mass redress events.

The FCA and the FOS want to work with stakeholders to identify redress events or wider implications earlier so they can be resolved quickly and efficiently. The CFI key objectives include more direct channels of communication with the FCA, the FOS and other regulatory partners.

The CFI highlights that, in certain circumstances, it might be appropriate for the FCA to pause application of DISP rules when its statutory objectives are affected. This would allow the FCA to assess the extent of harm and consider the best approach to resolve the issue. If the time limits for handling complaints are paused or extended, the FCA may also need to pause relevant limitation periods to make sure that FOS referral rights are not impacted.

When the FCA takes regulatory action, such as implementing an industry-wide redress scheme, cases could be passed back to firms with a reduced FOS case fee applied (or no case fee) if limited work has been carried out. 

Next steps

The FCA and FOS want to hear from stakeholders to better understand how the redress framework could be modernised to address the problems that mass redress events (and the redress system generally) cause firms, consumers and representatives.

The CFI mentioned the review of FCA requirements following introduction of the Consumer Duty, which closed for input on 31 October 2024. The FCA received comments relating to redress and dispute resolution that will be considered as part of this CFI.

The CFI closes on 30 January 2025. The FCA and FOS plan to summarise the responses and publish next steps in the first half of 2025. Whilst plans to modernise the redress system are at an early stage, it is clear from the CFI that we can expect significant changes to the complaint handling and redress system to be proposed.

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