Back in June, I blogged about the new complaints handling requirements introduced by PSD2. Since then the FCA have completed a comprehensive review of how Non-deposit Taking Mortgage Lenders (NDTMLs) and Mortgage Third-Party Administrators (MTPAs) handle complaints. The FCA also published a hypothetical case study on complaints handling which emphasised the importance of conducting root cause analysis.
Although the review only considered NDTMLs and MTPAs, the guidance may be helpful for other firm types to better understand what a good complaints process, including root cause analysis, should look like.
So, what did the FCA find?
Poor management information (MI) and a lack of root cause analysis
Overall, the firms which were included in the review appeared to have a positive attitude towards complaints root cause analysis. However, they didn’t necessarily use their MI to deal with the underlying reasons for complaints because complaints weren’t identified and recorded consistently.
In many cases, senior management and board reports only contained operational data and did not include details on the symptoms of complaints, their root causes or preventive actions. The reports were also missing details on customer experiences and outcomes, and the quality of complaints handling.
Tick-box compliance resulting in inflexible complaints handling
The FCA also found that some firms applied a tick-box compliance approach to complaints handling, while not fully appreciating the effect on customers. In the FCA’s view, this approach can drive complaints operations in ways which may not be in customers’ best interests.
The FCA identified an over-reliance on policies and processes and concluded that the resulting tick-box approach may limit staff’s ability to exercise judgement and put customers’ interests first, leading to potential harm to customers.
For example, errors were made by a firm during the collection of a direct debit. A financially vulnerable customer was asked to contact their own bank to recall the direct debit, as that would be quicker than the process of the firm correcting the error and returning the funds. The firm didn’t adequately consider the impact on the vulnerable customer of having to resolve the problem themselves.
So, what does good complaint handling look like?
The key message from the FCA’s review is that firms should effectively use root cause analysis to achieve the right customer outcomes and consider what the right customer outcome looks like in each individual case. Specifically, firms should:
- Ensure the MI they collect and analyse is accurate and relevant to their operations. MI should be used to measure whether customers are treated fairly and to identify ways to improve customer outcomes.
- Have robust root cause analysis capabilities to identify and remedy any recurring systemic problems. Effective root cause analysis should allow firms to find and tackle the root causes of problems (through a process change or improvement).
- Have appropriate governance and processes in place to make sure root cause analysis provides strategic purpose, accurately identifying recurring or systemic problems.
- Record complaints accurately. Weaknesses and failures in recording complaints may result in poor customer experiences and outcomes, and affect firms’ ability to put things right.
- Make sure internal systems and controls allow staff to identify and record complaints correctly.
- Have processes in place to make sure the data in their annual or biannual FCA complaints return is accurate.
- Establish and maintain effective and transparent procedures for the reasonable and prompt handling of complaints.
- Consider, for each complaint, whether the customer’s outcome and experience shows the firm has put the customer’s interests first. Inadequate application of good judgement – and the principle of treating customers fairly – may lead to poor outcomes.
- Make sure they assess complaints fairly, consistently and promptly.
If you would like any guidance or advice on complaints handling, please get in touch with one of our compliance professionals using the button below.