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the new framework for redress

Natalie Ceeney, chief ombudsman, at the FSA's conference on the new Financial Conduct Authority's approach to regulation

London, 28 June 2011

Today I'm going to be looking at the future role of the new Financial Conduct Authority (FCA) - very specifically through the lens of "redress".

First, however, a few words about the Financial Ombudsman Service, of which I am chief executive and chief ombudsman. As you know, we're the statutory dispute-resolution service. We were set up - and given legally-binding powers - to resolve individual financial disputes, where the consumer has been unable to get their complaint settled to their satisfaction by the financial business concerned.

The Financial Ombudsman Service is independent of the FSA in its day-today operations. And the FSA has no involvement in the work we do in investigating individual disputes and reaching decisions about them. But the FSA does appoint our board of non-executive directors. It is also responsible for scrutinising and approving our annual plans and budget.

The intention is that the FCA will continue to do this - ensuring our continuing accountability to all our stakeholders. But it is important to stress that the ombudsman service is only a part of what could be called the redress "landscape". And going forward, the FCA's role in relation to redress will be a critical one.

Perhaps this is a good point for us to remind ourselves that it is the FSA today (and will be the FCA in the future) that:

It is also the FSA today - and the FCA in future - that leads separate enforcement action (both in relation to complaints handling and the issues involved in complaints). This includes being able to set over-arching redress solutions which can bind-in the ombudsman.

what are the challenges facing the FCA - in relation to "redress"?

It's clear that the work of the FCA is going to be absolutely critical, not only to the ombudsman service but to the entire landscape of redress. So looking at the FCA's future role, specifically through the lens of redress - what are the major challenges it will need to tackle?

Based on the experiences of the last decade, there are two main issues I would point to around redress.

The first issue is the speed of regulatory action, once it starts to become clear that there's a situation where potential mass detriment for consumers is building up - because, for example, of widespread mis-selling, or a problem with a particular financial product.

Now this may be an obvious point, but it's a fundamental point that's worth making: the longer any consumer detriment is left to build up, the harder it is to resolve. Attitudes - both on the part of consumers and of firms - become entrenched. And the scale of the costs of redress rise - hardening attitudes yet further and making resolution harder still to achieve.

I think we'd all admit that we've learned a lot over the past decade. And as the FCA's approach document clearly states, "intervention has not always been sufficiently swift." I believe the consensus is that the sooner the regulator can intervene, the better.

Turning now to the second main issue that I think the FCA will need to tackle - in relation to redress. This is the question of how "joined up" - or otherwise - the redress "landscape" is.

I frequently hear the following questions - mostly from firms - on how redress "joins up" between the regulator and the ombudsman:

  • Shouldn't the rules cover everything?
  • Why does the ombudsman judge a case against us if I've followed all the rules?
  • If there's a regulatory "solution", shouldn't the ombudsman be part?
  • If an issue is identified, shouldn't the ombudsman and the FSA work together more closely to resolve it?

So will the FCA's new approach - and the government's proposals for a new regulatory structure - address these issues about "joined up" redress?

I believe they will. The FCA's approach document talks very clearly about "intervening earlier". The government proposes a new power that will allow systemic or mass issues to be identified to the FCA by a number of designated bodies. And there will be a clear responsibility on the FCA to report back within a defined time period.

These measures should - together - make a significant difference. They will give firms a higher level of certainty about approaches to redress before levels of consumer detriment build. They will ensure consumers get redress earlier. And the measures should also help avoid some of the reputational damage for the industry that's occurred in the past.

And for the ombudsman service - the measures should be very helpful in allowing us to avoid dealing with tens (or indeed hundreds) of thousands of cases involving the same issue.

a more risk-based approach

A further change that will, I think, be of significant help is the fact that the FCA's approach will be more risk-based - and there will be an increased focus on principles rather than on "tick-box compliance".

Following the recent judicial review by the banks on payment protection insurance (PPI), we should all now be far more aware of the role of principles. In far too many complaints, firms focus on a defence of "we were following the rules" - when common sense tells you that what the firm has done has breached the fundamental principle of "treating customers fairly".

However good the rules of the FSA (or FCA), they can never be so comprehensive as to be exhaustive. But a risk-based approach - and a culture within firms that puts the focus firmly on being fair to the customer - should do a huge amount to help reduce poor practice. And that - quite simply - will not only give firms greater clarity about the standards they are working to. It will also reduce the number of complaints they receive.

the new section 404 power

Another positive area I would like to highlight is the new section 404 power. This is the regulator's power to set an industry-wide or firm-specific redress scheme, which the ombudsman is formally tied into. Strictly speaking, of course, this is not part of the new legislation - but it was only recently enacted by the government and has already been used three times.

The vast majority of the complaints the ombudsman sees involve issues that are specific to the individual concerned - and do not indicate any wider, systemic problem. But in a small number of cases we do see an underlying, systemic issue.

Up till now we've not had the mechanisms to tie together the ombudsman and the regulator in a "joined-up" redress scheme. Section 404 does that, and should avoid some of the past criticism of disconnected redress schemes.

But it's important to stress that most of the complaints we see at the ombudsman service will continue to be individual ones, dealt with in our normal way.


As part of the government's proposed new framework for regulation, we will be required to publish ombudsman final decisions - which to date, are normally only ever seen by the two sides involved in each complaint (unless they choose to make the decision public).

Making these decisions publicly available is something we very much welcome. It will help in "busting" many of the myths about decisions we have made. It will also help to give clarity to firms on what complaints-handling standards are, as we see them.

Similarly, FCA proposals around transparency and openness should also increase certainty - as well as reducing some of the unhelpful speculation which often surrounds the issue of redress.

So, in conclusion, and looking through the lens of redress, I very much welcome the FCA's new approach. For redress, the future looks promising - for consumers and the financial services industry alike.

changes over the last decade

We can all see that the world has changed hugely over the last decade - the decade in which the redress framework described above has been in place.


Ten years ago Google was only a couple of years old and was hardly at the forefront of policy makers' minds. But the internet and social media have dramatically changed how society works.

Ten years ago if someone was unhappy, they wrote a letter of complaint. Today they can tweet their dissatisfaction to thousands of people. Or set up a Facebook page. Or start a blog. And this is what people are doing - increasingly.

Ten years ago, to find people commentating on financial services, the middle classes tuned into Radio 4. Now, bloggers like Martin Lewis reach up to 10 million unique users every day.

consumer expectations

Consumers now expect much more in terms of customer service. They are increasingly ready and eager to challenge what they are told. We expect "24/7" service - for everything. Over 500 people downloaded our complaint form off our website - on Christmas day!

The old days of "mustn't grumble" are long gone. People are increasingly aware of their rights - and many don't hesitate to use them. And we expect service to be personalised. We no longer want to be just one of the crowd. If Amazon can remember our preferences, why can't my bank?  

claims-management companies

And in the last decade we've also seen the emergence of claims-management companies. In financial services, these companies were born out of mortgage endowment mis-selling. Now, three quarters of PPI complaints to the ombudsman involve claims-management companies. They didn't create PPI mis-selling - but they have exploited the situation aggressively - and hugely to their commercial advantage.

The opinions I hear expressed about claims-management companies range from the unprintable to the view that they're "a more powerful corrective force than the regulator". But what everyone seems to agree on is that they are undeniably a powerful force in the market that can't be ignored.

change in financial services

And in the last ten years we have seen remarkable change in financial services. Gone is the image of a high-street bank manager and "the man from the Pru" - paternalistic and slightly apart. Instead, financial services are much more integrated into our everyday lives.

For example, you go to the supermarket now not only for your weekly shop but also for a car loan, a new credit card, a mobile-phone contract, travel insurance, even legal services.

And for many of us, credit - or debt - has become an everyday fact of life. With student loans almost essential, a high-level of debt is now seen as inevitable - and acceptable - at a far earlier age than it was for us.

And at the same time, financial products have become much more complex over the last decade - leaving many consumers increasingly bored and bewildered with the hassle of finance, and looking for trusted third parties to analyse and advise on what, and who, to trust out there.

today's redress framework - still fit for purpose?

the case against ...

"The mis-selling scandal of the decade" - Money Week, 17 March 2006

This headline - about payment protection insurance (PPI) - is from 2006, not last month. It suggests that five years ago it was already pretty widely known that PPI mis-selling was going to become a large issue. If a problem that surfaced in 2006 was only finally resolved in 2011 - after a high court judgment - surely this must imply a failure of the redress framework in place over that period?

In the past ten years, up to end of 2010, the FSA has imposed fines on businesses totalling over £225 million - for breaches of its regulations and for continued failures to handle complaints properly. So far in 2011 alone, the regulator has fined businesses a total of £20 million. And in relation to complaints handling specifically:

  • The Bank of Scotland was fined £3.5 million (in May 2011) for the mishandling of complaints about retail investment products;
  • RBS and NatWest were fined £2.8 million (in Jan 2011) for multiple failings in the way they handled customers' complaints;

"Bank on poor service" - Daily Mail , 19 February 2011

The customer perception is that banks don't listen to their consumers - and that complaints are growing. The Daily Mail says "more than half of customers are unhappy with the way complaints are handled".

Then there's the exponential growth of claims-management companies - which I mentioned earlier. Some argue that they are becoming more powerful - and indeed more effective - than the regulators in identifying trends (mortgage endowments, bank charges, PPI) early on and responding quickly and directly.

And some point out that the way banks have historically handled their own complaints has undoubtedly driven consumers to claims-management companies - because the banks' own complaints procedures made it difficult and intimidating for consumers to complain directly.

the case in favour ...

But there's another argument - which says that it's not the redress framework itself that's proved unfit - it's just the approach of the players involved. In support of this argument, it's worth pointing out that:

  • It may have taken some time - but the approach to PPI has now been resolved. The recent court case validated the approach the ombudsman has been taking all along. And as we all know, £6 billion of redress has now been provisioned for consumers by banks alone.
  • Complaints-handling by businesses is actually improving. PPI aside, our annual review figures for 2010/2011 show a fall in complaints about pretty much all banking products and services - with a noticeable 21% fall in complaints about current accounts.
  • We are seeing a far wider demographic of people bringing their concerns to us at the ombudsman service - which I see as very positive - with people from all backgrounds increasingly more confident in raising their concerns, and importantly, getting them addressed.
  • We have a regulator who is now clearly taking action when businesses get it wrong - and is ready to take direct enforcement action where there is consumer detriment. And that's leading to improvement - through increased management focus at many businesses on complaints handling and customer service.

so what needs to change?

My view is that the redress framework we have in place is largely fit for purpose. But I also think we need some changes - and that's largely changes in the behaviour of the players, as well as some updating of the framework itself.

Here's my prescription for change:

I'll expand on each of these in turn.

improve complaints handling - and learn from complaints

The FSA has recently announced a series of changes in the way businesses should handle complaints. These include:

  • Abolishing the so-called "two-stage process" for businesses dealing with complaints. This means that banks simply have eight weeks to seek to resolve a customer's complaint, without being able to say "go away" in the middle of the process.
  • Requiring each business to nominate a single senior person to assume overall responsibility for complaints handling - putting complaints high on the agenda of the senior management of each business.

I agree with these changes. They will help make it simpler for consumers to get their concerns heard - and will raise the importance of complaints, and good complaints handling, across all businesses. But surely there is more fundamental change which is just business common sense?

Complaints are customer feedback. This is your customers telling you what you did wrong. The best businesses:

  • learn from complaints;
  • treat complaints as insight;
  • see the way they handle complaints as a way of differentiating themselves from competitors; and
  • locate complaints handling somewhere close to "marketing" or to the central management of the business - and definitely not under "compliance".

This approach must surely make sense because:

  • all the research tells us that if a complaint is handled well, that customer is more loyal to you afterwards; and
  • that means they will buy more - and recommend you to their friends.

But the even more fundamental change is not to generate those complaints in the first place. It may sound trite: but if something doesn't feel like the right thing for customers, then it's surely not the right thing to do - even if the rules say it's permissible.

close the gap - real and perceived - between complaints and legislation

I regularly hear comments from consumer groups and businesses alike - that if we'd seen stronger regulatory action five years ago on PPI, we would have reduced the levels of consumer detriment and costs to business. And so everyone wants a faster feedback loop - so that complaints, especially those about wider issues, do not take years before there is a regulatory response.

From my perspective, the vast majority of ombudsman decisions are about individual circumstances with no wider application. And everyone agrees that the ombudsman service is not a regulator - nor should we be.

But I think we've all felt frustrated that when an issue is identified that has wider implications, it's not been clear whether the regulator is going to take action - or whether the ombudsman will be left to handle the issue by making decisions on individual complaints.

The good news is that the government's proposals - made earlier this month in the draft legislation on financial regulation - are very clear on this point. And the proposed regulatory approach for the new Financial Conduct Authority (FCA) makes very clear its aim of earlier intervention.

Under this new approach, my hope and expectation is that going forward:

  • the potential for detriment will be spotted and addressed earlier;
  • the regulator(s) will respond more quickly and proactively to address "mass detriment"; and
  • we should start to see the signs of restoring consumer confidence.

Of course, the Financial Ombudsman Service will retain its rightful place as the backstop if things go wrong and consumers lose out. After all, no regulatory framework can ever prevent every failure.

expand transparency of the regulatory and oversight process

One of the problems we have at present is that consumers think all banks are the same. We all know that they are not. And within the sector, too many myths are allowed to circulate because of speculation about the regulatory approach / or the ombudsman's approach. None of this is helpful. And in an internet world, none of this is tenable.

Here I believe the Financial Ombudsman Service is leading by example. Since 2009 we have been sharing more information about what we see - by publishing complaints data relating to named individual businesses. We firmly believe that this has led to:

  • better media analysis of good vs bad service (despite many industry misgivings at the early stages of our publication plans as to how journalists and other commentators would interpret the data);
  • the importance of complaints rising up the agenda of senior managers; and
  • a fall of 9% in the number of banking complaints referred to the ombudsman service in 2010/2011.

The proposed new legislation will require us to publish our ombudsman decisions. We welcome this as the next obvious step in debunking myths about the ombudsman's approach.

It will put into the public domain the full facts of the cases we decide - and reduce the amount of rumour and speculation about decisions we are making. It will lead to a better understanding of what we see and do. We will be working with you - and other stakeholders - from this Autumn on how we propose to take forward the practicalities involved in publishing ombudsman decisions.

a different approach to claims-management companies

We have a shared view of some of the problems in relation to claims-management companies.

There are very variable practices among these companies - including some sharp practice from those who "cold call", promising "no win, no fee" inducements to potential customers, some of whom may have no reason to complain. And we know that some claims-management companies fail to check even the most basic of facts, such as whether the product complained about was bought.

But we also all know that many consumers don't feel they have the time or the ability to bring a complaint themselves. They feel overwhelmed and intimidated by large financial institutions and lack the resilience to battle through your complaint processes.

so - what action is needed in relation to claims-management companies?

I hear widespread agreement - from industry and consumer groups alike - on the need for stronger regulation of the claims-management sector. We share this view.

But aside from this, surely the best way to resist claims-management companies is to prevent problems from occurring in the first place - and where they do occur, to sort out any complaints yourselves, proactively. Don't wait for claims-management companies to jump in.

You need to give consumers confidence that they can complain themselves - and that they won't be fobbed off. Barclays has recently taken action to try to improve consumer confidence by running a campaign in conjunction with Which? - to persuade consumers to refer complaints direct to Barclays.

Others have made their PPI complaints web pages simple and easily accessible, with clear guidance for customers to make the process simple. These steps forward are very welcome.

I believe it's important that banks make significant changes to the way they process and handle complaints - in order to build consumer confidence. We need to ensure that consumers find the process easy. Increased consumer confidence in a bank's own complaints process will surely mean less demand for claims-management companies.


Because of a serious of recent "mis-sale scandals", consumer redress is in the spotlight like never before. How we handle consumer concerns, and deal with redress when there are problems, really matters. Customers judge us through the lens of how we treat them when things go wrong - and this is something we all know needs to improve.

We need to take a fresh look at the redress framework. But I don't believe the current model is fundamentally broken. Like everything, it just needs to keep evolving.

It's easy to look to legislation to change things - and of course, this can certainly help. The new FCA's focus on earlier intervention, clarity and transparency are also very welcome. But there's a lot that we can do for ourselves - here and now.

The Financial Ombudsman Service is here to help in this. Part of our role is to share our insight - to help prevent future complaints. I hope we can work together to help restore the reputation of retail banking in the UK.

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