UK: FSA's Proposals To Address Retail Mis-Selling Through Complaints Analysis

Last Updated: 22 March 2010
Article by Sarah Redlich and Jean Price

The FSA has, last week, published – jointly with the OFT and the Financial Ombudsman Service ("FOS") – a discussion paper on the fair handling of complaints, the early identification and management of risks from such complaints, and the formation of a co-ordination committee as part of the wider-implications process to improve the identification of risks and the exchange of information.


The key proposals are to identify risks early from complaints data, take early action in relation to the issues causing those complaints, and, in this way, attempt to improve the selling and marketing of financial consumer products. The FSA intends that responsibility for this will lie with firms' senior management, with the wider-implications process members (the FSA, FOS, and the OFT), and even consumers.

The paper also proposes enhancing the current wider-implications process by the introduction of a co-ordination committee of FSA, FOS and OFT members to identify emerging risks and issues potentially giving rise to mass claims, consider whether regulatory action is required and/or suitable, and liaise with firms and consumer bodies as necessary.

The paper also summarises the ongoing initiatives already in place to improve consumer protection and redress channels, including the publication of complaints data and the collective action provisions in the Financial Services Bill.

The context

The proposals very much flow from two central focuses of the Government and FSA following the financial crisis in order to achieve better consumer protection. The first focus is identifying risks early and, where possible "nipping them in the bud" before significant complaints arise and serious customer detriment is caused.

The second focus, as set out in the Treasury's paper on renewing financial markets published last summer, is on renewing the emphasis on the importance of fair and speedy complaints-handling to reduce the need for regulatory action or intervention and to engender and improve consumer trust and confidence in the sector, and on using complaints data to identify and close down issues and risks before they become widespread.

The Treasury specifically called for a review of the wider-implications procedure and consideration of a consumer right to bring collective actions. The Financial Services Bill has dealt with the second; this paper and the co-ordinated committee proposal appears to be responding to the first.

These focuses arise from the FSA's ongoing serious concern, only heightened by the financial crisis, about the continuing issue of large-scale mis-selling, notably in the PPI sector. The discussion paper notes that more than half of the complaints received by FOS since its inception have related to only six retail products and around half relate to only five firms. The FSA clearly wants complaints data to play its part in eradicating failings in the retail financial sector.


In some ways, the proposals are a good thing for firms and do not radically alter the landscape currently in place. It is well-established now under FSA's Treating Customers Fairly initiative and its complaints-handling rules that systemic weaknesses and root causes should be identified from complaints and action taken in relation to non-complainants and processes going forward.

Furthermore, the wider implications process has been in place for a number of years, receiving referrals from FOS and firms alike when a large number of complaints have been received on a particular issue. The emphasis on identifying the risks and necessary action from complaints as early as possible will help firms to maintain customer confidence and reduce the costs of remedial work if issues are identified and action needs to be taken.

However, a number of concerns arise:

  • Will the proposals, particularly the co-ordinated committee, have a significant impact and be significantly more effective than the current regime in dealing with the failings that the retail market has seen in the last few years? Will renewed encouragement of firms to identify risks, the committee, together with more intensive supervision and tougher enforcement be the winning combination to significantly reduce areas of mass complaints?
  • The danger is that regulatory intervention is used too soon and too frequently where there may not actually be systemic weaknesses, problems or issues within firms' retail product processes and procedures – this will push up time and cost invested by firms and the regulator where widespread customer detriment may not actually ultimately have occurred.
  • If the intention is to avoid waiting until a large number of complaints have been received on an issue before considering a wider solution, what number of complaints will be considered sufficient to trigger the need to investigate causes and underlying risks and who will decide this?
  • Furthermore, will the committee's view of the causes of the complaint and underlying issues be reasonable and objective? A significant factor in this is the established problem of the use and benefit of hindsight – problems or issues may appear crystal clear when looking backwards contrary to the view taken at the material time.
  • The FSA clearly considers that supervision of product design, selling and marketing practices to be newly or back within its remit; identifying the causes of the complaint will necessarily require investigation into these areas. Pre-authorisation of products is not yet on the agenda and FSA continues to point out that it is not the "approver" of products or the processes associated with them but such intervention may be a foreshadowing of things to come.
  • Finally, it appears possible that there could be issues regarding FSA's position. If a firm discusses a potential concern and obtains FSA's "blessing" on its proposals to manage a particular risk, what will FSA's stance be if later the particular issue gives rise to an industry wide concern? How will FSA manage the conflict between its role as enforcer and identifier of risk?


The proposals are currently the subject of discussion. If introduced, it remains to be seen whether they will have a significant impact on reducing issues causing large volumes of complaints in the retail sector. Certainly in the cases where issues do exist and need to be rectified, the emphasis on "early diagnosis" must be good for firms and consumers alike. The benefit in the procedure depends on it being appropriately used in the first place.

We have extensive experience in assisting firms in connection with complaints-handling, FOS complaints, FSA reviews and investigations and would be pleased to discuss any of the matters raised in this article with you further.

The Regulatory Zone (RegZone) - a 'free to view' online service for CMS clients and contacts, providing a wealth of materials to help financial institutions deal with the fast-changing world of regulation. Click here ( to enter the zone

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 18/03/2010.

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