In the greater scheme of things, mistakes made by financial companies are rarely a matter of life or death, but they can still be incredibly irritating for consumers and both expensive and damaging for the companies responsible, particularly if a company then adds insult to injury by botching the way it handles complaints.

A review of complaints handling at various banks conducted by the Financial Services Authority (FSA) in April 2010 revealed poor standards, with five banks told to make extensive changes. The FSA is also now publishing firm-specific complaints data, meaning customers can compare the way different companies deal with complaints. And in January 2011 the Regulator showed it is serious about complaints handling when it issued a £2.8million fine to the Royal Bank of Scotland (RBS) and NatWest for multiple failings in complaints handling.

In September 2010, the FSA and Financial Ombudsman Service (FOS) published a consultation paper (CP10_21) outlining proposals for changes to the complaints handling rules. Key proposals are: that firms identify a senior individual with overall responsibility for complaints handling; abolition of the 'two-stage' handling process; full analysis of a complaint's root causes; new guidance on taking account of and learning from ombudsman decisions; and an increase in the limit on awards made by FOS from £100,000 to £150,000. The consultation period ended on December 31 2010. The FSA is currently reviewing the responses, with a Policy Statement to follow in April 2011.

Shake-up?
Within the financial industry opinions vary on the significance of these proposals. "[They] are not surprising and are based upon best practice already in the industry," says Steve Williams, director, service quality, Santander UK.

But Peter Brooke, director, financial services at Navigant Consulting, has a different view: "This is the biggest shake-up in this area in years," he declares, "a very clear sign of the frustration at the FSA and their view that firms have not given this enough attention."

The root cause analysis proposal will cause a few headaches. The CPP's authors wrote that this was "... a restatement of requirements that have been in force for many years ..." and that "... we do not expect firms to undertake root cause analysis on every complaint received".

Still, Eric Leenders, executive director at the British Bankers' Association (BBA), wants some more clarity on that point. "We'd say you should do root cause analysis only if it's unequivocal that systems and processes have failed to take account of a rule," he says. This proposal and the abolition of the two-stage process each present an opportunity for technology providers.

"Often people on the ground don't have the tools to do root cause analysis," says Hans Grefte, product development director at iCasework, which launched a new, web-accessible, on-demand complaints management system in December. "And if they do have a system sometimes people in different areas of the business have different systems."

The authors of the CP conclude that the two-stage process is "inherently prone to misuse". Under their proposal, a firm's first response to a complaint will now be its final response, with complainants told they can escalate their complaint to the FOS within six months if they wish.

"The abolition of the two-stage complaints process will have a significant impact," says Navigant's Brooke. "It will mean a huge redesign of processes."

"I think the thinking behind it is let's get more work completed in the front line," says Brooke's colleague Paul Willis, associate director of financial services at Navigant. "The aim is to get companies to move away from formulaic approaches."

But larger organisations selling more sophisticated products through multiple service channels will find this difficult, warns Grefte. "For a credit card company, where most interaction with customers is through a website or central office, a single stage procedure is fine," he says. "But with a large organisation where there's a distinction between specialist complaints handling teams and local delivery staff, that's where problems come. You need a single system to deal with the different stages of a complaint."

"We're not sure the removal of the two-stage process has been fully justified," says the BBA's Leenders. "In a number of circumstances it's very helpful. Complaints handling has been looked at a few times since 2001, so [this rule has] withstood scrutiny before. We would ask: 'why now?'"

The CP's authors noted a suggestion that there should be different rules for handling complaints submitted through these companies, but they were not swayed by it. They did recognise that there were some specific issues that needed to be addressed and promised a joint statement on this subject from the FSA, FOS and Ministry of Justice. At the time of writing, a spokesperson for the FSA says this statement is still planned, but its content is not yet finalised.

Practicalities
The BBA would like the FSA to think again. "Often the amount of information provided by a CMC is negligible," complains Leenders. "In the absence of a two-stage process where you can ask who was the member of staff you saw, was it a busy time, did you feel rushed - all the things that build a picture of what happened if you don't have a telephone voice recording - it can be difficult to judge a complaint. So does the very presence of the CMC have an effect on the way that complaints are being handled?"

The proposal for companies to summarise, analyse and communicate FOS decisions to complaints handlers will also require new knowledge management solutions, but the BBA has concerns beyond the practicalities. "[This] affords [the FOS] power to fill gaps in the rules," says Leenders. "That starts to build instability into the regulatory regime. We would not know what would be considered 'fair and reasonable' until a body of consumers has complained about it and been referred to the FOS. So you could have been doing things for a period of time in a way that would fail to meet the standard by which it would be judged by the ombudsman. That's a significant concern."

What are financial companies already doing to improve complaints handling? "Our priority is to address customers' concerns quickly and effectively and to use this valuable feedback as a learning opportunity," says Martin Dodd, group customer services director at Lloyds TSB. "We are investing heavily in our people and processes. The appointment of a Group Customer Services Director ensures that complaints are always on the agenda at an executive level.

"We have revitalised complaints case management. Customers are now dealt with by one individual from the start of their complaint through to the finish. So if a complaint was made in branch, the staff member in that branch would resolve the complaint. However, this is not possible in all cases [so] a specialist complaints team is in place to support the complaint to resolution.

"Through our 'one person' initiative we have halved the number of complaints which require further investigation and response. Of those that become full complaints around 80 per cent are resolved within two working days."

Crawford Davidson, director of marketing and international at RBS Insurance, is similarly bullish about progress his company has made. "We have instigated new procedures and increased staff numbers to support improvements to our complaints handling process," he says.

"Root cause analysis is already completed on the complaints data we capture and directly linked into our process improvement area," says Tim Franklin, chief operating officer at Co-operative Financial Services (CFS), "as well as being used to inform business policies, products and marketing campaigns. We welcome the proposed changes, which represent an extension of current working practices."

Resources
But will every financial company be prepared to release the necessary resources for process improvements and new technology?

"In the past complaints is not something that has been invested in heavily," says Barrie Neill, banking consultant at SAS. "It's been seen as a cost to the business. But [firm-specific data] is now in the public domain and journalists are focusing on the problem. So I think there is a shift to invest more."

Paul Clark, CEO at Charter UK, believes companies would be foolish not to do so, not just for cost efficiency, reputational and regulatory reasons, but because the process provides such valuable customer feedback.

He praises the FSA's stance: "What the FSA are trying to do is to make companies more mature. [The FSA is] probably making more progress in this area than any other regulator in any other sector." Consumers will be pleased too. But will banks be able to see past the expense and the operational headaches to the benefits they could gain through improvements in this area? We shall see.

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