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Complaint handling and the Alternative Dispute Resolution Directive complaint definition fca

Complaint handling and the Alternative Dispute Resolution Directive

An overview of the FCA’s proposed reform of complaint handling rules and its implementation of the Alternative Dispute Resolution Directive.

Submitted 30 June 2015 Applicable Law UK (England & Wales) , UK Topic Dispute Resolution - Financial Markets > Retail Consumer Products & Retail Finance > Retail finance Sector Focus Financial Institutions Contact Robert Allen

The FCA is engaged in key reforms of complaint handling and its dispute resolution rules. The latter represents its implementation of the Alternative Dispute Resolution Directive (2013/11/EU) (Directive) for the financial services sector.

Although the FCA combined its proposals for complaint handling and dispute resolution in one consultation paper (CP 14/30) published in December 2014, the implementation of the proposals has since diverged:

The FCA’s policy statement on improving complaint handling is expected to be published in summer 2015. The Alternative Dispute Resolution Directive Instrument 2015, amending relevant FCA rules in DISP, came into force on 09 July 2015 (the deadline for implementation of the Directive).

The FCA’s implementation of the Directive is one key part of the wider implementation of the Directive in the UK under:

The Alternative Dispute Resolution for Consumer Disputes (Competent Authorities and Information) Regulations (SI 2015/542) (ADR Regulations).

The Alternative Dispute Resolution for Consumer Disputes (Amendment) Regulations 2015 (SI 2015/1392) (ADR Amendment Regulations). Importantly, this changes the commencement date of the new information obligations on businesses from 09 July 2015 (the deadline for implementation of the Directive) to 01 October 2015.

Background FCA thematic review of complaint handling

The FCA consultation was launched against the backdrop of its November 2014 thematic review of complaint handling (TR14/18), which focused on whether there are any barriers for firms in handling complaints effectively. Complaints about payment protection insurance (PPI) were excluded from the scope of the review (there is separate regulatory scrutiny of PPI complaints).

The 15 firms which participated in the review conducted self-assessments and provided their documented policies, processes and management information (MI) to the FCA for its review. The FCA also established a working group with the firms and trade bodies to identify and discuss common issues, and sought the views of the Financial Ombudsman Service (FOS) and consumer bodies. The FCA found that:

Firms have taken steps to improve their complaint handling, both as a result of own-initiative activities and of regulatory action. Firms should and could do more to deliver fair complaint handling and consistent outcomes. The FCA found weaknesses in each of the five key stages of a firm’s complaint handling (identifying a complaint; recording a complaint; internal reporting of a complaint; provision of redress; conducting a root cause analysis (RCA)). There are barriers in firms that hinder effective complaint handling. These fell into four categories: application of the FCA’s rules in the Dispute Resolution: Complaints Sourcebook of the FCA Handbook (DISP), cultural barriers, operational barriers, and barriers relating to MI and RCA.

In light of the findings, the working group made a number of recommendations (summarised in TR14/18) to the FCA for it to consider when formulating policy proposals. The FCA’s proposals are set out in CP14/30. Not all the recommendations put forth in TR14/18 have been formally proposed by the FCA, and this article focuses only on the proposals made in CP14/30.

Alternative Dispute Resolution Directive

The Directive is a minimum harmonisation directive. It applies to all sectors (not only financial services), and all businesses dealing directly with consumers. 

The Directive was introduced by the EU to give consumers greater access to redress, which the EU hopes will boost consumer confidence and encourage growth of the economy. Alternative dispute resolution (ADR) can be an attractive solution for many consumer disputes, as it is a low-cost and straightforward alternative to the courts. However, its availability within member states, and across the EU, is patchy and inconsistent. 

The ADR landscape in the UK reflects the EU patchwork in microcosm, as there are more than 70 different ADR schemes. In some sectors (such as financial services), use of ADR is mandatory, and a single public ADR body operates as ombudsman. In other sectors (such as telecoms), ADR is also mandatory, as businesses have to refer unresolved disputes to an ADR provider, but businesses have a choice of different private ADR providers with whom they must sign up. Outside the regulated sectors, there are various voluntary schemes which businesses, particularly in the home improvement sectors, may choose to join.

Surprisingly, in light of the policy intention, the Directive does not make the use of ADR (by a business or by a consumer) mandatory (the UK was free to do so as part of its implementation, but the Government decided not to gold-plate the Directive in this way). Nor does the Directive affect where use of ADR is already mandatory, as this will continue to be the case for those sectors.

The Directive requires the UK to ensure that ADR, provided by a certified ADR entity, is available for any dispute concerning contractual obligations between a consumer and a business. Existing ADR providers do not have to become certified ADR providers, though there may be a competitive advantage to doing so, as businesses will be required to notify consumers about certified ADR entities. The certified ADR entity will be monitored by competent authorities and must fulfil certain requirements. 

The ADR Regulations:

Designates the relevant competent authorities. The FCA will act as the competent authority for FOS (as it already has oversight duties under FSMA, this will give it additional oversight responsibilities).  Sets out the application process and requirements for an ADR applicant to be approved and certified by the competent authority.  Notably, competent authorities can set additional requirements than those set out in the ADR Regulations, where another law or regulation requires a higher level of consumer protection. 

Importantly, the ADR Regulations set out key new information obligations for businesses:

Any business already required to use ADR (by law, regulation or by the rules of its trade association) must provide the name and website of the certified ADR entity on the business’s website and in any terms and conditions.  In the event of any unresolved dispute with a consumer (once the business has exhausted its internal complaint handling procedure), all businesses (not only those required to use ADR) must notify the consumer on a durable medium that it cannot settle the dispute, the name and address of certified ADR entity, and if the business is required, or willing, to submit to the ADR process offered by that certified ADR entity.

The new information rules on businesses will apply from 01 October 2015. The original commencement date of 09 July 2015 has been changed by the ADR Amendment Regulations, as it was considered unlikely that certain competent authorities would certify their applicant ADR entities by the July deadline.

It also means that the commencement date for the new information obligations is aligned with the commencement date for the Consumer Rights Act 2015 (Act). This will give businesses more time to comply, and in particular allow them to combine any changes for the ADR Regulations with any changes they will need to make to their terms and conditions, websites, sales, marketing, and systems and processes under the Act. For more information on the Consumer Rights Act 2015, see our elexica article Consumer protection reform .

Online Dispute Resolution Regulation

Resolution Regulation ( 524/2013 ) (ODR Regulation), which will come into force automatically on 09 January 2016. The ODR Regulation applies to disputes about online contracts (both domestic and cross-border).

It requires the European Commission to establish an online platform to facilitate communication between parties and certified ADR provider. The platform is not intended to resolve a dispute, but rather to channel the dispute to a relevant ADR provider should both parties agree to this. A translation service and an electronic case management tool will also be provided. The ODR Regulation also requires the UK to designate an ODR contact point to assist with disputes submitted via this platform.

All businesses who sell goods or services online will also be required to provide a link to the platform on their website.

Key proposed FCA measures Identifying and handling complaints

The FCA proposes to:

Extend the “next business day” period (where complaints resolved within this period do not have to be recorded and for which the firm does not have to provide a formal written response) to three business days. While the majority of complaints are dealt with within the next business day period, the FCA believes that the deadline can act as an artificial cut-off, pushing non-complex claims into the formal 8 week process without a substantive reason. This change would be applied from March 2016, in light of the work required to the FCA’s and firms’ reporting systems and processes. Require all complaints to be reported to the FCA. The FCA considers that this approach would improve transparency and provide the FCA with better data with which to make comparisons. This change would be applied from March 2016, in light of the work required to the FCA’s and firms’ reporting systems and processes. Allow consumers to refer a complaint to FOS before the end of the 8 week period. While firms currently inform consumers in final response letters (at the end of the formal 8 week period for complaints within that process), the FCA proposes that firms send a written communication (a summary resolution communication) to all consumers whose complaints are resolved at the end of the three business day period. This communication can be by email, letter or text, but it must notify the consumer that the firm considers the complaint to be resolved, make the complainant aware that it they are dissatisfied with the resolution, they can refer it to the FOS, indicate whether the firm consents to waive the relevant DISP time periods, and refer to further information on the FOS website.

The FCA has decided against amending the definition of “complaint” to remove the element of subjectivity around “material” distress or inconvenience, or more widely to remove any reference to financial loss, material distress or material inconvenience. The working party in TR14/18 had recommended changes, as that review revealed that sometimes staff found it difficult to make a judgment call about “materiality” in practice, and that, in any event, many firms used a wider definition of complaint (“any expression of dissatisfaction”) internally. However, the FCA has not adopted the recommendation so the definition will remain unchanged.

Ban on non-basic rate charges for helplines

The FCA proposes a new rule (new GEN 7.1-7.2 and new DISP 1.3.1AA-AD) to limit the cost of charges on calls that consumers make to firms for existing contracts and complaints. Firms may not impose more than the “basic rate”, which is defined as the simple cost of connection (and which must not provide the firm with a contribution to its revenue). The draft rules set out in more detail which number prefixes would comply with the call charges rule. 

While no express date is set out in CP14/30, the FCA expects the call charges rules to be implemented by firms “during summer 2015”. However, as the FCA’s policy statement to CP 14/30 is yet to be published, this deadline seems overly ambitious.

The call charges rule applies where a firm operates a telephone line for the purpose of a enabling a consumer to contact the firm in relation to a contract that has been entered into, in relation to regulated activities or payment services (there are some limited exceptions), or where a respondent operates a telephone line for the purpose of enabling an eligible complainant to submit a complaint. The exceptions include lines provided for MiFID contracts and for users requesting information or termination of a framework contract under the Payment Services Regulations 2009.

The ban is unsurprising, in light of calls on the FCA from the government and Which? to impose such a ban following the implementation of the Consumer Rights Directive ( 2011/83/EU ) on 13 June 2014 (via the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (CCRs)). The CCRs imposed a ban on non-basic rate charges for post-contract helplines for consumer contracts within its scope. While financial services generally (but not wholly) fall outside scope, FCA confirmed it agreed with the need for a similar ban in financial services (see letter from FCA to Which? ). For further information on the application of the CCRs to financial services, and more generally, see our elexica conference call .

As the ban on non-basic rate charges was trailed in advance, a number of banks have already announced that they will be switching to basic rate customer helplines. 

Long-stop date for complaints?

The FCA consultation did not discuss firms’ much desired “long-stop date” of 15 years for complaints to FOS. The FCA had previously committed to considering the issue of a long-stop date of 15 years for complaints to FOS (as set out in its 2014/2015 business plan), and intends to publish its views in due course.

How the FCA has implemented the Directive

The FCA’s implementation of the Directive has been made in conjunction with FOS. 

Key changes include the following:

New “consumer awareness” rules, under which firms have additional information requirements (as described above), including providing a link to the FOS website on their website and in their terms and conditions (DISP 1.2). They will also have to add new language into their final response letters and summary resolution communications on whether they consent to waive relevant time limits (DISP 1.6). The definition of “consumer” (for the purposes of an “eligible complainant”) has been widened to include all natural persons who are acting for purposes “wholly or mainly outside their trade, business, craft or profession” (DISP 2.7 9A(R)). This would have the effect of including professional clients and eligible counterparties where the person is an individual acting for non-business purposes. The definition would be relevant for any “contractual dispute” (that is, falling within the scope of the Directive) or “cross-border dispute” (where the consumer is resident in another member state).

Both the FCA definition and that in the ADR Regulations refer to the expression “wholly or mainly”. This has been included in the definition of “consumer” across the current range of UK consumer protection law reform (including in the CCRs and the Consumer Rights Act 2015). This is in order to expand the very narrow concept of a consumer in EU law, where an individual acting for private purposes but who also has a business purpose that was not negligible or insignificant, cannot be a “consumer”. The High Court applied this narrow definition for the purposes of the Unfair Terms in Consumer Contracts Regulations 1999 ( Overy v Paypal (Europe) Ltd [2012] EWHC 2659 ). The intention of the additional expression is to allow an individual acting for mostly private but also a non-negligible business purpose to benefit from consumer protection rules.

The FOS can consider complaints (both standard and consumer redress scheme complaints) earlier than under the previous rules, provided certain criteria has been satisfied (DISP 2.8.1R(4)). The FCA has not changed the time limit for referring a complaint to FOS (the existing six month, and three and six year, time limits). It has however made a change so that FOS can look at complaints referred outside the time limits if the firm consents (the old rule was that a firm must not object) (DISP 2.8.2R(5)). If a firm so consents, it may not subsequently withdraw its consent (DISP 2.8.2A(R)). On the matter of small businesses and their access to FOS in the case of mis-selling, the FCA is considering this issue further. As a minimum harmonisation instrument, the UK is in principle permitted to extend the application of the Directive to small businesses (although the UK has proved reluctant to do so in other areas of consumer law, such as the Act).

As for the FOS, it is designated as a certified ADR entity under the ADR Regulations. While it has met most of the requirements under the Directive to be certified, it does not meet two requirements:

Effectiveness. This refers to the duty to notify parties of the outcome of the ADR procedure within 90 days (other than for complex disputes). The FOS expects to meet the 90 day requirement by July 2017 (for all complaints, including PPI complaints). Grounds to refuse to deal with a complaint. The FOS expects to meet this by end of March 2016 for non-PPI disputes, and by July 2017 for all cases.

Key changes to FOS rules include:

Reducing the grounds for dismissal. DISP 3.3.4 (which once listed 17 grounds) has been amended to bring it in line with Article 5(4) of the Directive (which lists 6 procedural grounds that would allow FOS to refuse to deal with a complaint). One new ground of dismissal is where the dealing with a complaint would “seriously impair the effective operation of the ombudsman service” (DISP 3.3.4AR(5)), for which FOS has provided guidance on examples of what this might entail. Limiting the rules on dismissing a complaint for a test case to where the consumer has consented (DISP 3.4.2). Changes to Section 404B of FSMA

The ADR Regulations also amend section 404B (and schedule 17) of the Financial Services and Markets Act 2000 (FSMA) (Consumer redress schemes: Complaints to the ombudsman scheme). Corresponding changes have been made in the FCA rules.

Under these changes:

Firms and consumers can agree for complaints subject to a consumer redress scheme to be dealt with by the FOS by reference to what is fair and reasonable (not in accordance with scheme rules) (DISP 3.6.5A(G)). The definition of “chargeable case” has been amended to allow the FOS to charge for cases where the firm and consumer agree for the FOS to consider the complaint by reference to what is fair and reasonable, not the scheme rules. Where a complaint falls within the scope of a consumer redress scheme, the firm may not consent to waive the time limits under DISP 2.8.2R(5) unless the firm and consumer agree to disapply the consumer redress scheme for that particular complaint. Proposed FCA timetable Key date Event  13 March 2015 Consultation period for CP 14/30 ended April 2105 FCA Handbook Notice No. 21 provides feedback on the proposals in CP 14/30 to implement the Directive May 2015 FOS publishes consultation on amendments to its rules to implement the Directive 09 July 2015

Deadline for implementation of Directive

Rules apply to complaints from eligible complainants to FOS on or after this date

For FS firms, the information obligations apply

Summer 2015 Expected publication of FCA policy statement (on complaints handling) following CP 14/30 01 October 2015 For non-FS busines complaint-definition-fca-rid-0.html. moncler polo sale ukses, the information obligations apply March 2016

Indicative date for change to three business days.

Indicative date for change to reporting all complaints.

Look Out For The FCA’s final rules on improving complaint handling to be published summer 2015.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.


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