1. Certificate for Introduction to Securities & Investment (Cert.ISI) Unit 1 Lesson 59:  Breaches, complaints and compensation  The difference between a breach and a complaint  Handling a customer complaint  The role of the Financial Ombudsman Service (FOS) 59cis

2. Complaints Customers will always raise complaints against a firm providing financial services. Sometimes these complaints will be valid and sometimes not. The FSA requires authorised firms to deal with complaints from eligible complainants promptly and fairly.  Broadly speaking, eligible complainants are individuals and small businesses

3. Written procedures The FSA requires firms to have written procedures for handling expressions of dissatisfaction from eligible complainants. The firm may apply the same procedures to other complainants too, if it chooses The procedures must be followed regardless of whether…  …the complaint has been made orally or in writing  …the complaint is justified or not… …as long as it relates to the firm’s provision or failure to provide a financial service. If a piece of this bank sign fell and injured a customer, the FSA’s complaints procedure would not be applicable, as it does not relate to the provision of financial services. (However, the customer could sue for personal injury).

4. Complaints procedures A firm’s complaints handling procedure must cover the following stages  Acknowledgement of a complaint in a timely manner  Investigating appropriately the complaint  Notifying complainants of their right to go to the Financial Ombudsman Service (FOS) where relevant  Issuing the final response to the complainant within eight weeks of the date of the original complaint  The receiving of complaints

5. Complaints procedures The firm must ensure that a complaint is investigated by an employee of sufficient competence who was not directly involved in the matter The person charged with responding to the complain must…  The includes the authority to provide redress where appropriate, or  Have access to someone with the necessary authority to provide redress The responses to the complaint must adequately address the subject matter of the complaint  Where a complaint is upheld, appropriate redress must be offered  Any redress for financial loss should include consequential or prospective loss, in addition to actual loss  Have authority to settle the complaint  When a firm decides that redress is appropriate, the firm must provide fair compensation for any acts or omissions for which it was responsible

6. Complaints procedures Firms must take reasonable steps to ensure that all relevant employees are aware of the firm’s complaints handling procedures All employees must act in accordance with the firm’s complaints handling procedures  This includes any of the firm’s appointed representatives

7. Breaches of the regulations A “breach” is any action (or inaction) which conflicts with the regulatory requirements This is most commonly used in relation to a breach of the FSA rules. But it can also apply to other regulations, such as HM Revenue and Customs regulations for Individual Savings Accounts  Some firms treat a failure to follow internal rules as a breach

8. Breaches and complaints A “breach” is therefore a failure to follow rules and regulations. A complaint is an expression of dissatisfaction by a customer However, an investigation into a customer complaint might well reveal a breach of regulations or the firm’s internal rules  Like complaints, all breaches must be recorded  This is to ensure that that corrective and preventative action can be taken  Recording can also be used to identify trends so that further corrective and preventative action can be considered and implemented  Breaches may be identified either through internal checks or through a customer complaint  It is also used to determine whether the mistake needs to be reported to the FSA or other regulatory body

9. Financial Ombudsman Service (FOS) Under the terms of the Financial Services and Markets Act, 2000, the FSA was given the powers to make rules relating to the handling of complaints  The FOS is designed to resolve complaints about financial services firms quickly and with minimum formality  Eligible complainants are able to refer complaints to the FOS where they are not satisfied with the response of the financial services firm  The decision of the FOS is binding on firms, but it is not binding on the person making the complaint This led to the establishment of an independent body to administer and operate a dispute resolution scheme, funded by compulsory industry contributions. The scheme is known as the Financial Ombudsman Service (FOS). Natalie Ceeney, chief ombudsman

10. Financial Ombudsman Service (FOS) The Financial Ombudsman can require a firm to pay over money as a result of a complaint. The monetary award will be the amount that the Ombudsman considers to be fair compensation. However, the sum cannot exceed £100,000. The compensation can be for:  Financial loss  Pain and suffering  Damage to reputation  Distress or inconvenience

11. Financial Services Compensation Scheme (FSCS) The Financial Services Compensation Scheme (FSCS) has been established to pay compensation or arrange continuing cover to eligible complainants in the event of a default an authorised person. Note that a firm is an authorised person. Default, typically, occurs because the firm has become insolvent  Individuals  Eligible complainants usually excludes the firm’s more knowledgeable “professional” customers  Small businesses or organisations  Typically, the claim could be for money on deposit with a bank, or money invested with a fund manager or stock-broker  Eligible claimants are usually the less knowledgeable clients of a firm

12. Financial Services Compensation Scheme (FSCS) Maximum levels of compensation for claims against investment firms declared in default on or after 1 st January 2010  100% of the first £50,000 per person per firm o 100% of the first £30,000  Prior to that date, the maximum level of compensation for claims was o 90% of the next £20,000, up to £48,000 per person per firm  For deposit claims, the FSCS can pay up to £85,000 per person per firm in default  For insurance claims the FSCS can pay 90% of the claim with no upper limit.