UK Complaints Commissioner slams FCA over deficiencies in complaints handling

Antony Townsend, Complaints Commissioner, today published his latest Annual Report which covers the period from April 1, 2019 to March 31, 2020.

Let’s note that the Complaints Scheme was established by Parliament in 2000 to provide a means by which consumers and regulated firms and individuals could obtain redress for problems caused by the actions or inactions of the financial services regulators.

Complaints under this Scheme are nearly always dealt with by the regulators first. In practice, almost all the complaints relate to the work of the Financial Conduct Authority (FCA). Complainants who remain dissatisfied then have the right to approach the Commissioner for a review of their complaints. Over 90% of complainants do not escalate their complaints to him, and in a significant majority of the complaints which he investigates, he upholds the regulator’s decision.

The work of the Commissioner during the year has been dominated by the problems caused by delays in the FCA’s complaints handling, according to the report.

“The Commissioner’s office has had to deal with significant numbers of complainants who are at their wits’ end because complaints have been delayed, deadlines have been missed, the FCA has failed to send promised updates, and investigators have left and been replaced part-way through investigations”, Antony Townsend says.

Data supplied to the Commissioner by the FCA shows that from the end of December 2018 two things happened. First, there was a surge in complaints about two firms where investors had lost money – Collateral and London Capital and Finance (LCF). Those complaints had to be processed, though most of them were deferred pending independent inquiries into the firms and therefore did not require immediate investigation. Second, from the summer of 2019 there was a significant increase in other complaints.

In broad terms, there was a doubling in the annual number of complaints received by the FCA between the two-year periods 2016/18 and 2018/20. Excluding the deferred complaints, ‘normal’ complaints declined between 2016/17 and 2018/19, but in 2019/20 were around 50% higher than the historic norm, and 70% higher than the preceding year.

Faced with this increase in complaints, it is not surprising that the FCA struggled to deal with the workload. However, the problem it faced was exacerbated by the fact that it had not established a team with the capacity and resilience to cope with such fluctuations, nor with appropriate management information to enable it to manage.

A stark example of the difficulties experienced is Complaint FCA00700. The complainant had waited for fifteen months for his complaint to be investigated by the FCA, with repeated delays and several changes of investigator. In October 2019 he had been told that the investigation was near completion, but that there were some ‘important elements’ which needed further investigation. In November, he was told that the previous investigator had left, and that it was not possible to say what the ‘important elements’ were nor when the complaint would finally be resolved.

The Commissioner had to draw in the newly appointed executive director to look at the matter before there was a recognition that this was a problem.

“While the FCA can point to the major increase in complaints, this is not a sufficient explanation, because some of the underlying problems pre-date these increases”, the report says.

The Commissioner notes the delays, as well as certain problems of quality: the Commissioner repeatedly finds that complaints have been wrongly classified and under-investigated.

The Complaints Scheme requires the FCA to give complainants timescales, requires the FCA to ensure that complaints are dealt with by people with sufficient seniority, and requires the FCA to resolve the complaint as swiftly as possible, with the aim of satisfying the complainant. In many of the cases that reach the Commissioner, the FCA is not meeting the Scheme’s requirements.

According to the Commissioner, the FCA is still unable to provide reliable timescales to complainants, or regular updates to the Commissioner on progress in response to his recommendations, and the systems for using information from complaints to inform the improvement of regulatory processes remain underdeveloped.

The list of cases of interest for the Commissioner covers a set of themes, such as accuracy of registers.

Complaints involving the register were again a significant feature of the year. The Commissioner is aware of, and commends, the programme of work which the FCA has been undertaking to improve the usability and reliability of the register. He has, however, been worried about the FCA’s attitude when concerns have been raised about inaccuracies in register entries.

In case FCA00503, for instance, a complainant lost an investment in an Austrian firm which, it turned out, was a fraudulent clone. The firm appeared as a ‘passported’ EU firm on the FCA’s register despite the fact that it should have been removed from the register 12 years earlier. This was a result of an error made by the FSA.

The complainant bore some responsibility for her losses since she had not followed the FCA’s advice to make further checks with the Austrian regulator. The Commissioner made a recommendation that the FCA should compensate her for 50% of her losses, because the register error had been a significant contributory factor in her losses, but the FCA did not agree, on the grounds that the principal cause was the fraudulent firm, and the complainant ought to have followed the FCA’s advice.

Although the Commissioner understood the FCA’s arguments, he had a wider concern that his investigation had uncovered significant weaknesses in the FCA’s registration processes which the FCA’s own investigation had not identified. The FCA undertook to take remedial measures to address these, which it has now done.

During 2019/20, the Complaints Commissioner dealt with 205 complaints about the FCA, two were about the PRA (jointly with the FCA), one was about the Bank of England (jointly with the FCA).

About 23% of the complaints were about financial services providers or other bodies, not the regulators, and in those cases the Commissioner directed the complainants to other organisations which could help them.

The increase in complaints about the FCA (205 vs 169 last year) is due to 47 complaints related to the FCA’s oversight of four different firms, including London Capital & Finance PLC (LCF) and the Collateral Companies. These complaints were deferred by the FCA while regulatory action was being pursued.

The Office of the Complaints Commissioner also processed three subject access requests under the Data Protection Act 2018 during the year.