Can we tune up the UK's consumer redress engine?

The deadline is this Thursday (30 January) to response to the joint Financial Conduct Authority (FCA)/ Financial Ombudsman Service (FOS) Call for Input (CfI) Modernising the Redress System. The authorities also want to reduce the operational and financial burden on both firms and the FOS, especially where large numbers of complaints are made about the same issue (referred to as ‘mass redress events’).

What needs to change?

The authorities have identified several problems in the current redress architecture that raise its overall cost and reduce the quality of outcomes for customers. These include:

·?????? Too many mass redress events – faster identification of emerging problems and swift action could address the behaviour reducing the harm to customers and number of complaints.

·?????? Too many cases going to the FOS where firms would be better handling them directly – FOS case fees can make up a significant proportion of the total cost of a complaint for smaller cases. If firms handled more of these claims themselves more effectively, this would reduce costs and improve customer outcomes.

·?????? Mass redress events can overwhelm the system – firms receiving large numbers of complaints in a short period of time are often unable to investigate fully within time limits. This results in a higher proportion of complaints going to the FOS, who themselves are overwhelmed by the volume. The result is increased cost and slower compensation to customers.

·?????? Firms are unclear about the approach FOS will take – firms often complain that rulings appear retrospective or at odds with FCA intent. This is seen to make it difficult for firms to align their approach and complaints handling with expectations.

How are authorities approaching this and what solutions are on the table?

Several potential solutions have been put forward; however, the CfI makes it clear that the authorities are open to alternatives. For instance, new reporting expectations for financial services firms and professional representatives could be introduced to help all parties intercept and prepare for mass redress events. More time could be given to financial institutions to encourage them to resolve more complaints, thereby reducing the need for FOS involvement. The authorities are also considering tightening the expectations of professional representatives to ensure all claims they submit on behalf of consumers are properly evidenced.

What should firms do?

While the CfI raises a number of potential reforms, it leaves space for firms to make alternative suggestions. Any suggestions must balance the needs of firms and consumers supporting a cost-effective and fair redress system. Firms have much to add by setting out the challenges they experience and the levers that could be available to tackle these challenges.

Previous reviews have rejected many options for reform. However, the political and regulatory environment has changed. In framing their responses, firms should particularly consider solutions ?that could reduce the number of mass redress events or improve the effective management of mass redress events. Thought should be given to the effort required to implement solutions. Solutions that require legislative change will inevitably take longer to implement. And of course, the more evidence that can be provided in support of proposals, the greater the likelihood they will be adopted.

While it is essential that firms engage now if they want their ideas considered, there are likely to be future opportunities to engage in the policymaking process. We expect the authorities to summarise the CfI responses and set out next steps in a publication in the first half of 2025.

Christopher Woolard CBE Francesca Clausen Andrew Pilgrim Millie Harrold Matthew Rogers Corinne Kaufman Thea Hui

The views reflected in this article are views of the author and do not necessarily reflect the views of the global EY organization or its member firms.