FSA takes tough action on poor bank complaint handling

The FSA is taking a hardline approach after finding weaknesses in five banks' handling of customer complaints.

As a result of a review, five banks are undertaking major changes to the way they deal with complaints and two have been referred to enforcement for further investigation.

The review looked at several banking groups responsible for over 70% of the complaints firms receive and reported to the FSA and over 60% of those resolved by the Financial Ombudsman Service (FOS).

Names of the banks have not been revealed but the FOS received the highest number of complaints about Lloyds Group between July and December last year.

The banking group received over 20,000 complaints, nearly twice as many as Barclays, which was second. Other banks receiving large numbers of complaints were RBS, Abbey and HSBC.

The FSA review found poor standards of complaint handling within most of the banks assessed, including:

• A lack of senior management engagement and accountability for the delivery of fair complaint handling;
• Poorly designed staff incentive schemes that made branch staff reluctant to pay redress to customers, even in situations where the bank was at fault;
• Poor quality complaint handling by staff in branches and general call-centres leading to inadequate investigations, poor decision making as to the outcome of the complaint and unsatisfactory correspondence with customers;
• Complaint handling procedures that led to staff issuing multiple, repetitive responses to customers, forcing them to restate their complaint a number of times in the face of ongoing negative responses from the bank;
• The failure of banks to learn from previous complaints and to make changes to prevent similar complaints arising in the future.

However, the FSA did find examples of good and compliant practices in parts of some of the banking groups assessed. This demonstrates it is possible for banks to handle high volumes of complaints and deliver fair outcomes for consumers, it says.

Dan Waters, the FSA's director of conduct risk, says: "A culture of fair complaint handling is an important indicator of whether a firm is committed to treating its customers fairly. It is vital that customers know that if something goes wrong, their complaint will be deal with in a reasonable way and that they will get a fair outcome.

"While we found some good practice, there is clearly evidence of unacceptable standards of complaints handling in banks. Delivering change in this area is a major priority and we are determined to use all the tools available to us to ensure that banks comply with our rules."

To assist all firms in meeting its requirements, the FSA has published a complaints handling file review template.

The regulator is also reviewing whether it needs to make changes to its existing rules on complaint handling and will be publishing its proposals in the third quarter of this year.

However, the chairman of the Financial Services Consumer Panel says the results of the FSA review are "unacceptably poor and make dismal reading".

Adam Phillips says: "It is disgraceful that senior management in many banks are not taking complaint handling seriously and sorting it out. It should be easy for customers to complain. Clearly, this is often not the case. The Panel has long argued that the way staff are incentivised in banks works against consumers. This report proves it.

"While some banks are getting better at complaints handling, others clearly lag a long way behind. This cannot be tolerated. The FSA has now referred two banking groups with poor results to enforcement, and other banks have been told to update and improve their procedures. The FSA has committed to follow up work and consideration of rule changes later this year.

"The FSA needs to take swift and effective action , and to continue its work to ensure published complaints data is as clear as possible."