Complaints sourcebook and complaints procedures

Under the complaint handling rules a firm must deal with any expression of dissatisfaction about any financial services activity provided or withheld by your firm. Complaints may be oral or written. We consider it important that you deal properly with any reasonable complaint made by a consumer, whatever the subject matter of the complaint.

Yes. All firms are required to have in place appropriate and effective procedures for dealing with complaints. These procedures must be written down. A small number of specific rules set out what we see as the minimum standards for an appropriate complaints procedure. These are set out in Chapter 1 of the Dispute Resolution: Complaints Sourcebook in the FSA Handbook, and cover matters such as time limits for dealing with complaints, record keeping, and reporting requirements. Firms must publicise 'at the point of sale' the availability of their complaints procedure, and, under certain circumstances, inform complainants of their right to refer their complaint to the Financial Ombudsman Service.

The Financial Ombudsman Service (FOS) was set up to resolve disputes between consumers and firms. Its decision making is independent of FSA. The FOS provides a mechanism for resolving disputes which is a simple, informal and accessible alternative to the courts. Its compulsory jurisdiction covers complaints against authorised firms concerning their regulated activities and certain specified other financial services activities. It is provided free of charge to complainants. The FOS's decisions are based on what is 'fair and reasonable' and are binding on firms if a complainant accepts them.

The FOS covers all retail financial businesses regulated by the FSA and from April 2007 it also covers all businesses that have a standard consumer credit licence from the Office of Fair Trading.  This means that in addition to covering activities regulated by the Financial Services Authority the FOS also covers credit activities, as set out in the Consumer Credit Act 2006. 

One important difference between the scope of the FOS and the Financial Services Compensation Scheme is that the scope of the FOS includes mortgage lending and administration.

The FOS is funded in part by a general levy (payable by all firms covered by the FOS) and in part by case fees (fees paid by firms in respect of chargeable cases handled by the FOS). About 70% is now being recovered by way of the case-fee.

The general levy is calculated in the following way. The FOS  allocates all firms into separate fee groups known as 'industry blocks' (which are similar, but not always identical, to FSA's fee blocks). The FOS then allocates the amount to be raised by the general levy to each industry block in proportion to the anticipated cost of the resources needed to handle the number of complaints that are expected to be generated by that block. The total sum allocated to each industry block is then divided among the fee payers in each block, using a 'tariff base' to set the amount each individual firm must pay.

Each industry block has its own tariff-base, which is a measure of the scale of the business conducted by each firm in that industry block. The tariff-base is used to measure business done with private individuals only. There is a minimum levy in each industry block, with no maximum. Firms are allocated levies on a ‘straight line’ basis, so that the fee increases uniformly with the amount of business done. The tariff rates are set each year by the FSA, following consultation with industry on the FOS’s overall budget and specific tariff rates.

The remainder of the amount to be raised comes from case fees. Case fee arrangements are reviewed and consulted on each year and are subject to change.  There are two types of case fee, a standard case fee, and a special case fee (see FEES 5.5 in the FSA Handbook). Firms only have to pay the standard case-fee and the special-case fee for the fourth and subsequent chargeable cases closed in that financial year (see the Handbook Glossary for a definition of 'chargeable case'). Currently, the fee for both case-fees is £450. The FOS invoices each firm for those chargeable cases that it has handled against them at the end of the month in which the case is closed.

In order to complain to the FOS  you need to be an 'eligible complainant'. In broad terms, an eligible complainant is a private individual or a small company. For the precise definition, firms should refer to section 2.7 of the Dispute Resolution: Complaints Sourcebook in the FSA Handbook (DISP).

Complainants may refer a complaint to the FOS after:

• they have given the firm the chance to deal with the matter; and
• the firm has failed to resolve the matter to the complainant's satisfaction within the time limits.

For more information on time limits for dealing with complaints please refer to section 1.6 of DISP.

The FOS's decisions are based on what is 'fair and reasonable'. In deciding what is ‘fair and reasonable’, the ombudsman will take into account the relevant law, regulations, regulators' rules and guidance and standards, relevant codes of practice and, where appropriate, what he considers to have been good industry practice at the relevant time. The ombudsman’s decisions are binding on firms if a complainant accepts them. Once a complaint is made to the FOS it is generally dealt with in up to three stages:

• Conciliation: FOS staff will see if there is any reasonable prospect of resolving the dispute by reaching a settlement acceptable to both sides. The majority of complaints are in fact resolved in this way.
• Otherwise, FOS staff will investigate the complaint. They have the power to require information from the complainant and the firm. They then issue an adjudication setting out a recommended outcome and the reasons for it. If both the complainant and the firm accept the adjudication the complaint is resolved.
• If either party does not accept the adjudication, one of the ombudsmen will review the case and issue a final decision. If the complainant accepts the decision it will be binding on both parties.

The FOS may make a money award against a firm for such an amount that the ombudsman considers fair compensation for financial loss and/or for pain and suffering or damage to reputation or distress or inconvenience. The maximum binding money award which the ombudsman may make is £100,000. If the ombudsman considers that an amount more than the maximum is required as fair compensation, then the ombudsman may recommend to the firm that it pays the balance.

Additionally, or alternatively, the ombudsman may also direct a firm to take such steps in relation to the complainant as the ombudsman considers just and appropriate.

As noted above, firms only have to pay the standard case-fee and the special-case fee for the fourth and subsequent chargeable cases closed in the year. The FOS has the power to reject complaints that it considers "frivolous or vexatious" (in other words, mischievous). If the ombudsman dismisses a complaint on these grounds then the firm will not be charged a case fee.

Other complaints that the FOS can dismiss without considering the merits include those where there has been no financial loss, material distress or material inconvenience, and those where the complaint is about a firm's legitimate exercise of its commercial judgement. In such cases, the FOS will not charge a case fee if it is apparent from the complaint, when it is received, and from any final response which has been issued by the firm, that the complaint should not proceed on these grounds

Subject to the considerations below, any provision seeking to charge customers, or to recover costs, for dealing with complaints before the ombudsman service, is unjustifiable, as this could deter customers from exercising their right to refer the dispute to the service.

Treating customers fairly

In most circumstances we would consider such a clause in a firm's terms of business to be unfair under the Unfair Terms in Consumer Contracts Regulations. In addition, such a clause is, in our view, inconsistent with Principle 6 of the FSA’s Principles for Businesses, which requires that a firm must pay due regard to the interests of its customers and treat them fairly.

Exceptions

However, we recognise that frivolous or vexatious complaints may raise unnecessary administrative burdens for both firms and the ombudsman service alike. In these circumstances, we think it would be legitimate for firms, through their terms of business, to seek to reclaim costs and expenses reasonably incurred by the firm as a result of defending these complaints through the ombudsman service.

The question of what is frivolous or vexatious would need to be determined on a case-by-case basis; this would undoubtedly only be in a very small minority of cases. Our starting point would be that, if the ombudsman service did not dismiss a case during its initial review under rule 3.3.4(2) of the FSA Dispute Resolution: Complaints manual, the claim should not be regarded as frivolous or vexatious.

FOS is intended to be an alternative to the Courts. Consumers still have the right to pursue a claim through the Courts. If a complainant is not happy with a decision taken by FOS they can reject the decision and pursue the matter through the Courts if they wish. However the Courts would not take on a case where the Ombudsman's decision has been accepted by the complainant.

As well as resolving complaints, the ombudsman service helps to promote ‘complaints prevention’.  This involves working with businesses to identify and reduce problems that might otherwise lead to time-consuming disputes.

It does this through its regular newsletter ombudsman news, as well as quick guides, technical notes and other publications including a guide about the ombudsman service aimed specifically at small firms .  The ombudsman service also organises and takes part in wide range of seminars, conferences and workshops across the country. 

Its technical advice desk is a free service dedicated to the needs of businesses.  It gives informal help on complaints-handling matters, including how the ombudsman might view specific issues.  Drawing on many years of experience of settling financial disputes, the technical advice desk can help businesses resolve complaints more effectively themselves at an early stage.  This often avoids the need for complaints to be referred formally to the ombudsman service. 

Visit www.financial-ombudsman.org.uk for:

1. news and frequently asked questions
2. information and updates
3. technical guidance for business and help for consumers

The Treasury has made a special order dealing with complaints arising after 31 October 2004 (the start of FSA regulation of mortgage broking) about the activities of a mortgage broker before regulation began. This is the Financial Services and Markets Act 2000 (Transitional Provisions) (Complaints Relating to General Insurance and Mortgages) Order 2004.

This order means that the Financial Ombudsman Service can look at such complaints if:

1. they are about the activities of an authorised firm that is a former member of the Mortgage Code Compliance Board (MCCB); and
2. the complaint would previously have been considered under the Mortgage Code Arbitration Scheme.

If you satisfy these conditions and you are an authorised firm, the FOS will be able to deal with complaints about your pre 31 October mortgage activities.

Similar arrangements apply for general insurance brokers. The FOS can deal with complaints about the general insurance-related activities of a broker before 14 January 2005 (the start of FSA general insurance regulation). This is provided the complaints relate to an authorised firm that is a former member of the General Insurance Standards Council (GISC) and the complaint would previously have been considered by GISC's dispute resolution facility.

You should note that the FOS will consider such complaints with reference to the rules and regulations that applied at the relevant time i.e. the Mortgage Code for complaints about pre 31 October 2004 mortgage activity and the GISC rules for complaints about general insurance-related activity before 14 January 2005.

No. Provided that the firm is authorised by the FSA (e.g. for investment business), it does not matter that the firm has decided to leave the mortgage market and no longer conducts mortgage business.