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Regulator to cap compensation payments in complaints scheme

Written by: Owain Thomas
The Financial Conduct Authority (FCA) is proposing fixed bands and a cap on compensatory payments offered through its complaints scheme.

The changes would also apply to complaints made about the Bank of England and Prudential Regulatory Authority, as the scheme covers all three regulators.

The regulators are also proposing to simplify the wording of the scheme with the aim of making it more accessible to consumers and small businesses who are its main users.

Ex-gratia compensatory payments fall into two types under the scheme: distress or inconvenience, and those in relation to financial loss.

At present there are no set levels or recommendations about how complainants affected by regulatory failings should be compensated.

Distress and inconvenience

The proposals suggest three tiers for goodwill payments concerning distress and inconvenience caused by the regulator:

  • Up to £250 where the complainant has experienced a moderate level of distress or inconvenience;
  • £250-£500 where the complainant has experienced a high level of distress or inconvenience;
  • And £500-£1,000 where the complainant has experienced a very high level of distress or inconvenience.

“While these bands do not appear in the current scheme, we believe that the outcomes for most complainants, under the revised scheme, would be broadly consistent with the FCA’s current practice,” the regulator said.

It added: “When considering distress or inconvenience, we would generally only make a compensatory payment when our actions or inactions have contributed significantly to the complainant’s distress or inconvenience.

“We propose that compensatory payments would normally fit into the bands, although there may be exceptional circumstances where we conclude that a higher level of compensatory payment for distress or inconvenience would be appropriate.”

Financial loss

In cases of financial loss, the regulators said they would consider making a compensatory payment but this will be limited to a maximum of £10,000 unless in exceptional circumstances.

“Moreover, in most cases we would expect any compensatory payment we make to be lower than this,” the FCA said.

Financial loss compensation will only be considered where adequate documentary evidence of the loss has been provided.

This must be alongside where the regulators are the sole or primary cause of the loss and there has been a clear and significant failure by them.

The FCA said it would consider a number of relevant factors to help it decide the appropriate amount including:

  • The seriousness, nature and duration of failing(s) and consequences for the complainant;
  • The amount of the complainant’s evidenced and foreseeable financial loss;
  • The complainant’s individual circumstances, based on information provided or available;
  • The extent to which the issue, which has resulted in the complaint, is within the regulator’s remit.

The FCA said: “We do not expect this clarification of our approach to compensatory payments to substantially change the proportion of cases in which we make such payments, nor the amounts paid in general.

“It will, however, improve the transparency of our approach to making compensatory payments, ensure that our decisions on remedies under the scheme are more predictable, and therefore ensure that the expectations of complainants are realistic.”

Vexatious complaints

The regulator is also proposing to formalise its approach to vexatious complaints or abusive or discriminatory behaviour of complainants.

“In these cases, we may not investigate, or may stop investigating, a complaint,” the FCA said. “Where our concerns relate to the behaviour of a complainant, we would only do this after warning them and when we consider this appropriate to safeguard our staff.”

The FCA complaints scheme has come under significant criticism from the Complaints Commissioner and MPs on the Treasury Select Committee in the last four months.

The commissioner has highlighted major flaws in the FCA’s approach and ability to handle, and repeated his demand for the regulator to publish this consultation on changes to the scheme payments and simplification.

Meanwhile, the MPs warned the regulator that it would be coming under increasing scrutiny for how it handled complaints.

The FCA has seen the percentage of complaints completed within its eight-week service level fall from 80% in 2017/18 to match its 75% target in 2018/19 and then falling below target to 68% in 2019/20.

The consultation is open until 14 September.

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