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Regulator to review banks' complaint handling processes as ombudsman complaints reach record levels

The financial industry regulator is to conduct a review of the way in which customer complaints to banks and building societies are handled, one of its directors has confirmed.

Speaking at an industry event Linda Woodall, head of mortgages and consumer lending at the Financial Conduct Authority (FCA), said that the first phase of the project would be completed by the end of this year, with recommendations to follow in 2014.

"The amount of complaints that go to the [Financial Ombudsman Service (FOS)] suggests that something isn't working in the way in which firms manage and investigate customers' complaints," she told the Building Societies Association.

"It is 100% in the industry's interest to ensure that when customers do complain, they have confidence their complaint will be recognised, that it will be investigated fairly in a timely manner and that redress will be paid where it is due. We are hopeful that [the review] will lead to a reduction in the number of customers requiring the services of the Ombudsman to obtain the appropriate redress," she said.

The announcement came as the FOS reported that it had handled a record number of complaints over the first half of this year, fuelled by an increase in the number of complaints against the sale of payment protection insurance (PPI) that had been rejected by banks. The FOS is the independent body which deals with complaints by individual consumers against financial services companies which cannot be resolved through the company's own complaints procedures.

In the six months to 30 June 2013, the FOS took on 327,035 new complaints against firms - an increase of 15% on the previous six months. More than 86% of these complaints involved PPI, while complaints about other financial products fell. According to the FOS, 95% of its new cases involved only 195 of the more than 100,000 businesses it covered, while five companies accounted for 78% of all new PPI cases. Approximately 75% of PPI cases resolved in this period were decided in favour of the consumer, according to the data.

Commenting on the data, chief ombudsman Natalie Ceeney said that the service was "still seeing cases where businesses are not following our long-standing approach to PPI", leading to unnecessary delays for consumers. PPI is intended to cover repayments due on loans or credit cards for people who cannot afford them because of an accident, sickness or death but regulators have found that these products were "widely mis-sold" to customers who were not entitled to claim on them in the past.

The FCA's work on firms' complaint handling processes will take the form of a 'thematic review', which is used by the regulator to assess a current or emerging risk relating to an issue or product within a sector or market. It will be conducted in two phases; the first of which will consider how firms identify, record and report complaints. The second phase, which will begin next year, will look at how firms deal with redress and use complaints data to address the "root cause" of common customer issues.

"The thematic review will identify why complaint handling is not working well for some consumers and address any poor practice within firms," Woodall said. "We will use our new assessment approach to place greater onus on 'senior persons' to understand how effective their firm's complaints handling process is, and how they use the complaints experience to identify and correct the systemic causes behind customers' complaints."

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