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Exploring the FCA’s review of firms’ approach to Consumer Duty complaints & root cause analysis

This article explores the FCA’s ‘good practice and areas for improvement’ findings following its review into firms’ approaches to complaints and root cause analysis.
The FCA’s findings were based on a targeted and thematic review of practices in forty firms across a range of sectors including retail banking, insurance, payments, consumer investments and consumer finance.
The insights were informed by data provided by firms through an information request issued in January 2024, together with a range of other data sources including FOS uphold rates for each firm; firms' current uphold rates; the time taken for the firm to deal with complaints; and the total number of complaints received by the firm in the previous 12 months.
The FCA also reviewed firms’ complaints policies, procedural documents and guides, and asked each firm to explain how it identifies harm, to provide evidence of governance and senior oversight, and for examples of any changes they have made following analysis of root causes.
Understanding and monitoring the outcomes customers are experiencing, and acting where there are problems, is an essential part of meeting the requirements of the Consumer Duty; it allows firms to track patterns over time and examine outcomes for different customer cohorts.
UKGI recommends that firms review their complaints and root cause analysis processes and procedures in light of the findings set out in this report, and that smaller firms take account of the FCA’s specific commentary regarding smaller firms.
Key findings
The FCA found that most firms had established processes for carrying out root cause analysis of complaints management information (MI) and identified trends and themes of complaints. The regulator also found evidence of clear escalation routes and accountability in firms, meaning everyone across the business knew where to send MI and other information.
However, the regulator noted that the following areas required improvement:
- Complaints MI was not always granular enough to tell the firm about the outcomes for different groups of customers, including those with characteristics of vulnerability. This meant that some issues were not being properly identified, especially where firms had diverse target markets for their products.
- A lack of clarity about whether there had been appropriate discussion on the data at decision-making forums and what actions would be taken; this meant that opportunities to make changes that would improve customer outcomes were being missed.
- Firms did not always measure the impact of interventions to measure the efficacy of changes made, meaning that sometimes firms pursued actions that were not as effective as they may need to be.
Overall findings: complaints data and MI
The review found all firms captured data to understand the harms their customers were experiencing; however, data quality varied.
The FCA noted good practice where:
- MI dashboards were used to set out a firm’s MI and help it to track outcomes and identify harm.
- Firms used enhanced complaints MI dashboards which linked data, including complaint volumes, complaint outcomes, FOS complaints, quality assurance and complaints from customers with characteristics of vulnerability outcomes, back to Consumer Duty outcomes. This allowed deeper analysis of the root cause of complaints related to products and the development of heatmaps to identify priority areas of focus.
- Data packs included a range of data points and set out the root causes of complaints along with action the firm was taking; the regulator notes that this is more likely to lead to meaningful discussion and actions taken in relevant Board and committee meetings.
- Firms reviewed FOS complaints, whether upheld or not, to understand what drove complaints- even where the outcome to the complaint was judged to be fair.
- Comparison and combination with external sources: Building on complaints MI by using social media feedback alongside the firm’s own data to identify common themes.
Areas requiring improvement:
The regulator noted that often complaints metrics and data was not sufficiently granular to capture outcomes for different groups of customers, including consumers with characteristics of vulnerability. Where firms have diverse target markets for their products, it is difficult for firms to monitor whether any groups of customers are receiving worse outcomes than others without more granular data.
Overall findings: root cause analysis
The regulator found that most firms sampled had a framework for conducting root cause analysis (RCA), and that this was clearly set out in policy/process documents.
Actions focus:
The regulator noted good practice where:
- Firms had created action plans with clearly designated owners, deadlines and remediation actions.
- Firms had carried out root cause analysis to enable the implementation of appropriate action to prevent the issue from recurring and had reviewed the efficacy of any solutions.
- Firms had implemented monitoring systems to evidence any changes made as a result of harms identified through RCAs.
Areas requiring improvement:
- It was not always evident from the material reviewed that firms had taken action after identifying harm.
- Where firms did make changes to address harm, many did not say what the impact of these changes had been, nor whether they had monitoring systems in place.
- The FCA was critical where the RCA process was too high-level and did not effectively identify trends and systemic issues (as this will clearly limit the ability of executives and Boards to review implementation of this aspect of the Duty).
- Some complaints data reports appeared to be prepared for operational discussions, for example, to ensure the organisation had the right resource to answer complaints, rather than to also consider how the data could help to inform how the firm could improve customer outcomes.
- The FCA was critical of firms with limited or no analysis to draw out themes or symptoms of complaints, root causes or preventative actions.
Measuring impact
The regulator noted good practice where:
- Firms set out how they measure whether the actions they had taken were effective (e.g., the introduction of an electronic verification system to replace a manual system that had been the subject of complaints, and measuring the impact of the change by reviewing customer feedback and tracking the take-up rates of the new process).
Areas requiring improvement:
- Some firms detailed actions taken but did not set out whether they had assessed whether this was the right change, if more needed to be done, or if the change had delivered the desired impact.
Cross firm action
The regulator noted good practice where:
- Firms expanded responsibility for root cause analysis beyond the complaints team by providing information to people who could act on it.
Areas requiring improvement:
- Firms focusing solely on feedback to staff and training, rather than considering whether other action would be appropriate.
Evaluation
The regulator suggested adopting a ‘Five Whys’ problem-solving technique to encourage firms to practice deeper thinking and challenge assumptions about the root cause of a problem. This method involves asking 'why' five times in a row, with each question building on the previous answer, starting with 'why did the customer complain', and challenging itself on the drivers of the complaint and underlying issues.
An example of this in practice related to an insurance proposal might be:
- Why was the insurance proposal declined? The consumer’s specific risks did not match the insurer’s covers.
- Why did the customer think they were eligible? The insurer’s marketing materials suggested a customer would qualify based on other factors such as claims history.
- Why were the marketing materials misleading? Because they did not explain clearly enough that certain specific risks were a factor in deciding whether to provide cover.
- Why didn’t the marketing materials set out the importance of these specific risks? Because the insurer did not test the materials with customers to make sure they were clear.
- Why didn’t the insurer test the materials? Because it did not have a formal process in place to test customer-facing communications to ensure they are clear.
Overall findings: Governance
The FCA found that, of the firms sampled, most had clear organisational structures and clear overall responsibility for complaints.
Governance and challenge
The FCA noted good practice where:
- Firms evidenced clear escalation routes and accountability, meaning everyone across the business knows where to send information, and who is responsible for driving forward action and/or change.
- Data dashboards or data packs were often presented at committee and Board meetings where there was evidence of challenge and scrutiny.
Areas requiring improvement:
- Lack of clarity in organisational charts about who was responsible for complaints.
- A lack of evidence about how substantive issues relating to complaints were fed back to the person responsible.
- Sending data to committees as a tick-box exercise rather than an opportunity to engage and drive change, resulting in a lack of evidence of discussion and engagement on the data by decision-makers in the firm.
- A lack of clarity about whether there had been detailed discussion on the data, and what actions would be taken, with a lack of challenge or action.
- Recording the outcomes of documentary reviews; where discussion is happening in practice, it should be recorded sufficiently.
Collaboration within the firm
In terms of collaboration within the firm, the FCA noted good practice where there was evidence of changes which enabled teams worked more closely together to understand what complaints data was telling them, and where and how to act.
Taking action on insight
The FCA noted good practice where:
- Consumer Duty and complaints analysis were standing agenda items at committee meetings where any new material issues, potential harm or notable complaints were raised.
- Firms captured systemic complaint issues in a weekly MI email sent to its risk committee members and executive-level management, allowing for real-time oversight and timely action.
- Firms set an appropriate threshold approach to reporting lines, enabling consideration of the severity of an issue when deciding whether to escalate, and to whom the issue would need to be escalated.
Policies and procedures
The FCA noted good practice where:
- Firms had good policies and procedures which had been updated to reflect the enhanced expectations under the Consumer Duty.
- Policy documents were interactive, engaging and informative, giving examples of common situations to equip staff to know how to handle a situation or process.
- Firms had working groups to discuss issues faced by customers with characteristics of vulnerability, perhaps with monthly meetings to review existing governance documents and update policies to help address issues raised.
Training
The FCA noted good practice where:
- Firms had training that was mandatory and assessed with refresher courses available.
- Detailed staff training was reviewed; the regulator noted that this seemed to contribute to better communication between complaint handlers and consumers, as this tended to include practical examples.
- Interactive examples of common scenarios were reviewed, such as ‘how to help a consumer with different needs’ (e.g., scenarios including bereavement, domestic abuse or financial difficulty), with advice about how staff can spot these circumstances, suggestions for how staff could respond, and suggestions for how to provide ongoing support including signposting where appropriate.
UKGI can help
UKGI can assist firms in considering whether they have robust and relevant complaints and root cause analysis processes and procedures, including appropriate granularity of MI.
If you have any questions about, or need any support in relation to, analysing complaints and their root causes, get in touch at info@ukgigroup.com. We will be happy to happy to discuss how we can assist.