Coronavirus will reshape financial services complaint-handling

The FOS will be more likely to have cases referred to it as the volume of Covid-19-related complaints grows.

It is likely that the FOS will play a greater role in determining the more complex and contentious cases which businesses have not managed to resolve themselves. Its approach to such cases can be anticipated to a degree, and it will have implications for firms' own approaches to complaints-handling in the future.

FOS interventions so far

The FOS has itself acknowledged that it will have a greater role to play in financial services complaints dispute resolution over the course of the coming months. This is reflected in what chief ombudsman, Caroline Wayman, said in her introduction to the FOS's budget plans for 2020-21.

Wayman said: "It goes without saying that Covid‑19 will further amplify both the uncertainty and potential complexity of our casework. It will also require a shift in our focus – as it has too for the regulator and the businesses we cover. We’ll need to be ready to handle any complaints that arise from the situations that individual and small businesses customers now find themselves in – a number of which have already reached us."

Up to now, however, the FOS has been relatively restrained in its comments on the Covid-19 crisis compared to the Financial Conduct Authority (FCA). This is perhaps unsurprising given it is not the regulator and so not tasked with providing 'real-time' policy responses to the unfolding crisis. The FOS is an informal dispute resolution service for individuals and small businesses and usually has to allow financial services firms an opportunity to investigate and resolve complaints within an eight-week timeframe before it may be called upon to intervene. The result is that there will be a time-lag before a body of complaints works its way through the FOS process and where ombudsman final decisions begin to get published.

That is not to say that the FOS has remained silent during the Covid-19 pandemic. In recent weeks, it has already given some indication as to the types of cases it has begun to see.

The FOS budget plans stated: "As we publish this document, we’ve already received a number of enquiries and complaints relating to the changing circumstances of UK customers and their engagement with financial services. Although the situation continues to evolve, these cases have so far ranged from disputes over insurance claims made as a result of the pandemic, including travel and business protection insurance, to concerns around lenders’ treatment of customers unable to pay mortgages and other debts. We’ll keep in touch with our stakeholders about what we’re seeing, as well as staying in close contact with firms to understand the potential impact of Covid‑19 on our respective operations."

The examples cited are consistent with the areas of focus in the FCA's recent set of announcements on its Covid-19 guidance webpages. As expected, the pandemic is causing significant disruption to businesses' ability to operate, and to individuals' freedom of movement and travel. It is also placing considerable pressure on people's ability to repay various types of lending.

In tandem with this, there is an increased scrutiny of firms' responses to customer difficulties. Recent press reports suggest some businesses are prepared to commence legal proceedings in respect of unpaid business interruption claims.

These developments are set against a backdrop of previous changes made to the scope of the FOS' work, and its decision-making powers. On 1 April 2019 the FOS' jurisdiction was extended to cover certain SMEs, as well as some charities, trusts and personal guarantors. At the same time, the FOS' award cap was increased to £350,000 for complaints regarding acts or omissions occurring on or after 1 April 2019. The cap has recently been increased again to £355,000 in certain cases.

The FOS' 'fair and reasonable' approach will remain the cornerstone of its decision-making

Whilst the FOS's fair and reasonable decision-making remit is well established, we would expect this already elastic test to be stretched even further in respect of Covid-19-related complaints. Chief ombudsman Caroline Wayman has hinted at this.

Wayman said: "This extraordinary situation requires an extraordinary effort to support the tens of millions of customers who’ve been affected – in some cases very seriously – by the crisis. From an ombudsman’s perspective, this goes to the heart of what it means to act fairly and reasonably, taking individual circumstances into account. Twenty years after we were established, the significance of these principles has never been more apparent."

We have already seen some indication of this approach being applied in the context of business interruption cases, for example, where the FOS has noted that insurers should not only consider a strict interpretation of the policy terms, but what’s fair and reasonable in the particular circumstances – particularly taking into account the unprecedented situation that the response to Covid-19 has created. The FOS has also pointed out that insurers might wish to consider, where there’s a potentially valid claim, if there is scope to make interim payments earlier than they might otherwise do.

Similarly, in respect of travel insurance the FOS has put down a marker to insurers in respect of asking them to take pragmatic views of consumers' decisions not to travel or to curtail a trip. Whilst the FOS recognises the challenges of validating some claims, it expects consumers to be treated fairly and encourages insurers to give careful consideration to the available evidence, including credible consumer testimony.

Vulnerability will play a central part in FOS decision-making

Whilst the FOS has, for many years, factored in the vulnerabilities of certain consumers in its decision-making, we expect that this issue will become even more dominant when it exercises its fair and reasonable approach to Covid-19-related cases – not least because a far greater proportion of consumers will likely fall into the FCA's definition of vulnerable customer as a result of the pandemic.

Indeed, vulnerability has also been identified by the FOS as a specific cross-cutting trend in its business plans, with it focussing on "vulnerability in its broadest sense, as cross‑sector conversations continue about how it arises and how to identify and address it".

It is not difficult to foresee, for example, the FOS taking a particularly sympathetic view in relation to complaints brought by elderly victims of scams and frauds, some of whom may be particularly susceptible to unscrupulous fraudsters in the current climate.

Firms would be well-advised, therefore, to ensure that their vulnerable customer and financial crime prevention policies, amongst others, are sufficiently adequate to manage these types of vulnerability issues. This may need some careful 'read across' from existing FOS case studies and decisions on the issue, as well as the FCA's current draft guidance which is due to be finalised at a later date when normal business operations are resumed.

Complaints-handling systems will need to rise to the challenge ahead

Aside from policies and procedures relating to vulnerability, firms will need to ensure that their general complaints-handling systems are sufficiently robust to handle and resolve Covid-19-related complaints, together with non-Covid-19 related ones.

Whilst the FCA has appeared flexible and pragmatic in its approach so far, it would be a mistake to interpret this as a 'free pass' on which firms can take a more relaxed approach in respect of its complaints-handling processes. The current pandemic may see a rise in more complex or contentious cases and so firms' complaints-handling systems will need to not only be operationally resilient, but properly attuned to the requirements the FCA and FOS outline.

That means firms will need to give careful consideration to principles of fairness and reasonableness in their substantive decision-making when complaints come through their doors, as well as being alert to any wider systemic issues to which these complaints may give rise.

Whilst this may appear burdensome in what are already challenging times, it may well help to limit the number of FOS complaints referrals which, depending on number, may trigger case fees, which have recently been increased to £650 per case, as well as mitigate the risk of FCA investigation and enforcement action for non-compliance further down the line.

FOS will continue to move in lock-step with the FCA

Whilst this was the position before the pandemic, we would expect to see even more 'joined up thinking' between regulator and ombudsman at this time and beyond. That much is apparent in the FOS' latest business plan in respect of cross-sector trends where it has identified financial hardship as a particular trend, noting "the FCA’s programme of work in this area" and "the challenges of persistent debt and wider indebtedness, including in the context of the use of high‑cost credit".

Issues around indebtedness and financial hardship will naturally become an increasingly prominent issue given the current circumstances, and we believe it is likely the FOS will draw on current FCA Covid-19 guidance in future when reaching adjudications and decisions in this and other areas. For example, the FOS has noted on its website that, given the extraordinary circumstances at this time, it expects businesses to think about additional forbearance measures, such as payment holidays, and have regard to the FCA measures which came into force on 9 April 2020 which are designed to provide temporary financial relief for customers impacted by Covid-19.

Expect a wait before we see a body of FOS decisions

Even before the pandemic, the FOS had been facing scrutiny from parliament, the media and the general public in terms of reducing its waiting times to investigate and resolve cases. It has stated that it aims to reduce waiting times significantly.

However, it is difficult to see how the current situation will do anything but lengthen the wait for customers and businesses. Like most organisations, the FOS has had to alter the way it works, reducing its phone line access hours and declining to accept posted mail. It also recognises that the pandemic will affect its recruitment plans, making it harder for it to tailor its service to demand.

These immediate issues also have to be viewed in terms of the FOS's wider budgetary position, in which it has had to absorb significant costs of just over £25m through the reduction of its reserves. It follows that the deployment of resource and personnel will be more challenging and stretched than before, potentially resulting in slower decision-making.

These delays may also be compounded by potential legal challenges to FOS final decisions by losing parties – particularly in cases where a FOS decision may potentially pose an existential threat to a business or have wide ranging adverse impacts across its business lines.

Whilst the FOS' aim to reduce waiting times is admirable, we would expect that the current challenges and wider budgetary pressures will make it particularly difficult to meet this objective, and that customers and businesses may face potentially significant delays before their cases are resolved.

Further into the future

In the longer term, we expect the current pandemic could act as a catalyst for the 'fair and reasonable' approach being more readily applied by firms at the initial complaints-handling phase.

After Covid-19, there is a realistic chance that the financial services sector could move even further towards a mentality of "doing the right thing" and embedding a culture of fairness, in line with the FCA's agenda. Many firms had already arrived at that destination, or were taking substantial steps towards it, but we expect this shift could now be accelerated and more profound. It is conceivably challenging for a firm to 'turn back the dial' once it has shown what it is able to do.

This could have the impact of changing firms' own complaints-handling systems to be even more customer-centric, so that less complaints end up going to FOS, as firms look to remediate early on. Or if they do go to FOS, then ombudsmen may end up viewing the standard of what is fair and reasonable at a lower threshold.

Jonathan Cavill and Anthony Harrison are experts in financial services dispute resolution at Pinsent Masons, the law firm behind Out-Law.