UCM DS2.jpg

The Wrath of the Regulator: Complaint Costs and Consequences

Wed 03 Oct 2018

By Adam Cooper, Business Manager, Equiniti Charter

Customer complaints can be costly, both financially and to a business’s reputation. In 2017, the FCA issued fines totalling almost £230 million, as well as naming and shaming those concerned for breaching market regulations, with some of the biggest fines levied against providers for financial crime and a failure to comply with the core business principles (PRIN).

Fines can also be imposed by the Information Commissioner’s Office (ICO) if the business is deemed to have failed to observe data protection laws or privacy and electronics communications regulations. Last year, the ICO fined automated callers £260,000 and four nuisance callers more than £600,000 back in January. The newly implemented General Data Protection Regulation (GDPR) will increase these powers still further, allowing the ICO to fine organisations up to 2 percent of annual turnover or 10 million euros for failing to handle customer data correctly.

Headline news

When it comes to complaints, the FCA analyses and publishes the details of those businesses which have received over 500 complaints over the course of the past six months twice a year (or 1,000 complaints per year in some cases). Firms are also required to publish complaints data on the company website. This can see the business gain some unwelcome attention, eroding customer and shareholder confidence and tarnishing the company reputation.

The press are quick to leap on these stories. Headlines over the past few years have included fines of £21m fine and £117m fine respectively levied against high street banks for mishandling PPI, as well as fines of £30.6m and £2.6m against firms for failing to record and investigate complaints properly.

For businesses that admit liability and settle quickly, the FCA gives a 30 percent reduction, but the damage is often done. One high street bank had to set aside £350m for case-handling costs and saw an inevitable 6 percent dip in its share price following a failure to handle PPI correctly.

Sliced and diced

The standardisation of complaint reporting procedures since 2016 has gone some way to giving us a clearer picture of complaints management and allowing the industry to determine how effectively different products and service are faring. FCA reports have become much more detailed and it now publishes interactive sortable tables that allow data to be classified by product, volume and in the context of accounts and policies. The down side of this deep dive is that these results are more accessible and are reported even more widely in the news.

The latest set of results make for interesting reading. In the second half of 2017, the FCA recorded 3.76 million complaints, up nearly 500,000 compared to the previous year, although this rise can be attributed to the impending PPI deadline. Excluding PPI, which could be said to be skewing results, complaints remain relatively constant at 2.21million, with 98% of those complaints originating from 222 businesses.

So what does this tell us about the state of complaint management?

  1. Frontline services aren’t having the impact they should – Increasing the resolution period to three business days was expected to reduce the number of escalated complaints but resolution rates remain static. Excluding PPI, 56 percent of complaints are resolved in three days, unchanged from the first six months of 2017.

  2. Complaints aren’t diminishing – The number of complaints (2.21m) remains a constant and despite the best efforts of the FCA isn’t on the decline. In fact, we can expect complaint handling to increase given more regulation in the marketplace. New legislation such as the GDPR will see consumers gain more rights over the way they interact with businesses and become more aware of and willing to exercise those rights.

  3. Management Information (MI) is not informing business strategy – MI should be extracted and used to help refine and align business products and services with customer need to reduce complaints. FCA figures show that uphold rates (ie those cases where the business agreed that the customer’s complaint was valid) remain constant at 56 percent. This suggests that root cause analysis, which is vital in identifying the cause of complaints, is not being effectively used to inform MI.

These findings clearly indicate that while changes introduced by the FCA in the way complaints are reported have helped even the playing field, differences in the way those complaints are captured and processed within businesses vary. While complaint recording has improved, remediation continues to be slow and while MI capture is being observed for compliance purposes, it doesn’t appear to be being used as business intelligence.

Clearly the next step has to be the systemisation of complaint management as a workflow process and it’s here where the FCA is now turning its attention with RegTech. These solutions not only provide systematic workflow but also compliant automatic reporting. The aim is to map reporting requirements to the data the business holds to automate the processing of returns. But RegTech also has the potential to improve complaints handling. Something that - given the static nature of the statistics from FCA reports - clearly needs to happen.

Business-centric complaint management not only ensures compliance but seeks to streamline and even reduce complaints. MMX Compliance ensures FCA compliant reports and returns are generated but also accumulates the MI evidence needed to support the TCF principles. MI capabilities including Root Cause Analysis to determine precisely why customers are complaining enabling management to adjust the business offering accordingly, and bring down complaint volumes and compensation costs.

To explore how MMX Compliance can improve workflow and generate MI to better address customer complaints, contact us today.

Please provide any further detail that will help us with your enquiry