Financial complaints data highlights need for firms to maintain robust controls

Complaints relating to affordability continue to feature heavily in the FOS’s caseload, together with a troubling, if not surprising, uptick in cases relating to fraud and scams.

These ongoing and varying challenges, coupled with a renewed assertiveness from the Financial Conduct Authority (FCA) with respect to enforcement, mean that financial services firms will need to continue to maintain robust systems and controls, as well as rigorous complaint-handling processes for when things do go wrong, so as to mitigate the risk of further FOS and FCA scrutiny.

Complaint types on the rise

Perhaps the most eye-catching and concerning takeaway to emerge from the data is the significant increase in complaints relating to fraud and scams. This has been an issue since before the pandemic, but Covid-19 has provided further opportunities for sophisticated fraudsters to target an ever-increasing proportion of customers who have been transacting online during the lockdowns.

The FOS said over half the complaints it received about current accounts – the most complained-about product this quarter – relate to fraud and scams. It received 5,025 complaints about scams compared to 3,028 in the same period during the previous year.

Many consumers have been dissatisfied with financial businesses’ decisions not to refund money lost as part of a scam. The FOS data shows an increasing uphold rate in this area. This suggests that some firms’ approach to combating financial crime cases and related complaints-handling may need to be fortified to avoid further regulatory scrutiny.

Tackling fraud and scams also remains a key priority for the FCA, which emphasises the need for firms to be vigilant and proactive in tackling these challenges and remediating where appropriate.

In addition to scams and other frauds, the FOS data also suggests that affordability remains a serious problem for many consumers.

Although the FOS said complaints about affordable lending fell in the first three months of this financial year, it said it had still received just over 5,000 new complaints about historic affordable lending, demonstrating how pervasive this issue is across the financial services sector and the wider economy.

This is underscored by the high FOS uphold rates across credit products where complaints about unaffordable lending are most prominent.

With the FCA also focusing heavily on the fair treatment of customers, particularly vulnerable customers, firms will need to keep their obligations in this regard at the top of their agenda in terms of how they approach affordability issues and offer suitable support.

Complaint types in decline

While it would be unwise to predict how the pandemic will develop over the coming winter months, the complaints data does appear to suggest that some complaints that had been particularly prominent due to coronavirus have started to drop off.

The FOS reported a decline in complaints concerning business interruption insurance for small and medium businesses. This could well be related to the Supreme Court judgment earlier this year which helped to clarify policy wordings relevant to some complaints.

Similarly, the FOS data shows a decline in complaints regarding the Bounce Back Loan Scheme, as many of the complaints it received previously related to lending decisions from banks in the early stages of the pandemic.

As for individual customers, the number of new complaints about travel insurance fell by 59% from previous quarters. This may see further declines as government policy in this area becomes more relaxed, leading to potentially fewer cancelled trips. But, given policy-making in this area is so fluid and the emergence of new Covid-19 variants so unpredictable, an increase in this area of complaints should not be ruled out.

Looking ahead

Although the number of some complaint types appears to be receding, the overall economic picture for consumers and firms remains challenging for the foreseeable future, particularly with the end of furlough and universal credit top-ups; acute supply-chain pressures; and surging energy and fuel prices.

Against that backdrop, issues around affordability and forbearance are likely to remain a key area of complaint to which firms will need to remain alert – particularly with regard to more vulnerable customers.

Unfortunately, this challenging backdrop may also provide further incentive to fraudsters and scammers to exploit consumers who are already feeling the financial strain. One notable area highlighted by the FOS concerns cryptocurrencies which have featured in many complaints related to frauds and scam investments.

The FOS does not have jurisdiction to look into cryptocurrency-specific complaints, but it would not be too difficult to envisage it seeking to stretch its jurisdiction, where it can, to assist consumers in this area. An example could be where a cryptocurrency issue is ancillary to a regulated activity which the FOS can consider.

This potential ‘activist’ approach is also consistent with the assertive positioning adopted by the FCA in this area, noting its recent comments in its business plan on being proactive around its perimeter - particularly on the issue of online advertising of investments.

Co-written by Anthony Harrison of Pinsent Masons, the law firm behind Out-Law