Insights ¦ Call for Input Modernising the Redress System

Key Take Aways

• The current redress framework effectively handles individual complaints but struggles with mass redress events involving large volumes of complaints and systemic harm.
• Increasing complaint volumes, particularly from professional representatives, can overwhelm firms and the Financial Ombudsman, leading to delays, increased costs, and potential disorderly firm failures.
• Greater collaboration between the FCA and Financial Ombudsman is planned to improve early identification and management of issues with wider implications (WWI), with a focus on cooperation frameworks like the WIF.
• There is a proposal to potentially define what constitutes a mass redress event to enable earlier detection and intervention to prevent systemic issues from escalating.
• The use of outcome-focused regulation, such as the Consumer Duty, introduces interpretative challenges that could contribute to redress events without clearer guidance and consistent enforcement.
• PRs play a significant role in complaints volumes, but concerns exist around their behaviour, especially regarding poorly evidenced or meritless claims which may dilute redress funds.
• Discussions are ongoing about adjusting DISP rules and Financial Ombudsman processes, including considering a two-stage complaint process and differential routes for represented versus non-represented complainants.
• Cost recovery and fairness are key themes, with considerations for amendments to the Financial Ombudsman case fee structure, especially in mass redress contexts.
• Extending or modifying the time limits for complaints and introducing ‘pausing’ powers during investigations are under review to improve handling of systemic issues.
• There is recognition of the need for better reporting and early warning mechanisms for redress issues, including enhanced data sharing and stakeholder engagement channels.
• The scope of regulatory cooperation is being expanded to incorporate early engagement, improved information sharing, and enhanced stakeholder involvement in issues with wider implications.
• Longer-term legislative or regulatory changes may be required to underpin new tools, definitions, and cooperation mechanisms for more resilient redress pathways.

Key Statistics

• Financial Ombudsman assesses over 200,000 cases annually, up from 30,000 in 2001.
• Complaints related to PPI accounted for over 1.87 million, with total redress paid exceeding £38.3 billion.
• The Financial Ombudsman has a staff of 2,000 and a budget of approximately £251.9 million per year.
• Complaints volumes increased approximately 51% year-on-year from June 2023 to June 2024.
• PRs charge up to 30% of the redress award in fees, with the FCA proposing a fee of £250 per PR-represented case, reduced to £75 if the outcome favours the consumer.
• The FCA’s current complaint referral time limit is 6 months from final response, and 6 years from the event, with a 3-year knowledge threshold.
• Enforcement measures include a proposed fee for PRs to complain, with a reduction depending on case outcome.
• The FCA is considering a formal definition for mass redress events, possibly based on quantitative factors such as volume of impacted consumers.
• The FCA and Financial Ombudsman engagement channels are under review, including increased stakeholder involvement in the WIF.

Key Discussion Points

• The effectiveness of the existing redress and complaints handling framework in managing mass redress events and systemic harm.
• How to develop a formal definition for mass redress events to facilitate earlier identification and targeted intervention.
• The role and behaviour of claims management companies and PRs in mass redress situations, including charges and evidentiary standards.
• How outcome-focused regulation, like the Consumer Duty, influences interpretation consistency and the risk of redress events.
• Potential amendments to DISP and Financial Ombudsman rules to better manage high complaint volumes and resource constraints.
• Whether a two-stage complaint process could improve resolution times and reduce referrals to the Financial Ombudsman.
• The appropriateness of differential routes and evidentiary standards for complaints handled by PRs versus individual consumers.
• Adjustments to case fee structures and dismissal grounds to ensure fairness and cost recovery during mass redress events.
• The need for new powers, such as pausing complaint timelines or extending time limits, during systemic investigations.
• The importance of early warning systems, more proportionate data collection, and stakeholder engagement to improve identification of wider implications.
• Enhancing the operational cooperation framework, including the WIF, to facilitate swift, early action on systemic issues.
• Potential policy and legislative changes necessary to support a modern, resilient redress system capable of adapting to evolving market and regulatory landscapes.

Document Description

This article is a comprehensive consultation document published by the FCA and the Financial Ombudsman, seeking stakeholder input on the modernisation of the redress system. It explores current challenges, particularly related to mass redress events, with a focus on early identification, operational cooperation, regulatory consistency, and potential rule and legislative reforms. The article aims to shape a more effective, fair, and resilient framework capable of addressing systemic harms while supporting consumer protection, market integrity, and the UK’s international competitiveness.