In order to enhance the effectiveness and efficiency of the financial redress framework, the Financial Conduct Authority (FCA) and the Financial Ombudsman Service (FOS) have issued a call for input (CfI) on modernising the redress system. This initiative aims to ensure that the system better serves consumers and provides a stable environment for firms to invest and innovate. Here's a closer look at the key aspects of this.

Understanding the Need for Modernisation

The CfI notes that the current redress framework is effective in handling individual customer complaints regarding specific issues. However, the system faces significant challenges when dealing with mass redress events, where large numbers of complaints arise concerning the same issue. These challenges are exacerbated when firms fail to promptly identify and address these issues, leading to compounded harm. The objective of this CfI is to gain a comprehensive understanding of:

• Ways to modernise the framework: Identifying opportunities to make the redress system more agile and responsive to emerging challenges.
• Improving identification and management of mass redress events: Exploring mechanisms to swiftly detect and address mass complaints, minimising harm and facilitating quicker resolutions for consumers.
• Enhancing collaboration: Strengthening the partnership between the FCA, the FOS and other stakeholders to ensure a unified approach in interpreting and applying regulatory requirements. An updated Memorandum of Understanding between the FCA and the FOS was published on the same day as this CfI, which underscores this commitment to collaboration.

So what are the proposed reforms?

To help achieve these objectives, the CfI makes numerous short term and long term proposals. Short term steps that the CfI proposes include:

• Providing further guidance on how firms can effectively identify and address harm. This may for example require firms to implement a proactive past business review. The FCA plans to publish a report in Q4 2024 highlighting examples of good practice for firms when using data about its complaints to identify existing harm.
• Reintroducing a two stage complaints procedure for firms which was abolished in 2011. This required firms to send the complainant an initial written response within eight weeks of receiving a complaint. Firms were not required to provide a subsequent final response unless the complainant indicated, within eight weeks, that they remained dissatisfied. This approach allowed consumers to first appeal a decision to the firm directly, before going to the FOS and gave firms an opportunity to review the case before it was referred to the FOS. This will reduce the need for FOS referrals and may also save case fees for firms.
• Restricting circumstances in which complainants and respondent firms can request final decisions from the FOS, given that it is rare the determinations change from their preliminary assessment.
• Ensuring that where complainants are represented by Personal Representatives (PRs), that complaints are properly evidenced. This includes confirmation that the FOS will begin to charge PRs £250 to make a complaint, reduced to £75 if the outcome is favourable for the consumer.
• Broadening the grounds of dismissal for FOS in DISP to include, for example, powers to dismiss complaints where the FCA has implemented an industry wide redress scheme that would be more appropriate for the complainant and will require firms to reconsider and resolve those complaints.
• Adding a time limit or "longstop" date for making a complaint. This will aim to provide some certainty for firms in absence of which they can be held accountable for an event that has taken place many years ago.

Additionally, the FCA and FOS are proposing longer term changes, including:

• Fostering greater collaboration between the FCA and FOS. This includes consulting between the two bodies on cases and making their views on interpretation of FCA rules more widely known.
• Giving the FCA powers to pause complaint handling requirements under DISP rules during mass redress events while the FCA carries out diagnostic work to assess the extent of harm and the best approach to resolve the issue. Currently, the FCA can only consult on rule changes or make emergency rules without consultation to pause the time limits for handling complaints as the FCA did recently for motor finance.

Next steps

Stakeholders are encouraged to provide their views by 30 January 2025. The FCA and FOS then aim to publish the response and next steps in the first half of 2025.