Complaints and Compensation
Sometimes, a customer is unhappy with a financial firm.
For example, they may believe:
- advice was poor
- charges were unclear
- a complaint was ignored
- support was not good enough
- they were treated unfairly
Therefore, financial firms need a proper complaints process.
If the problem is not resolved, the customer may be able to take the complaint further.
In some cases, compensation may also be available.
The key point is simple:
Customers need a clear way to complain and, where appropriate, receive redress.
What Is a Complaint?
A complaint is an expression of dissatisfaction about a financial product or service.
For example, a customer may complain because they believe:
- the advice was unsuitable
- information was misleading
- a fee was not explained
- the firm caused unreasonable delay
- the firm treated them unfairly
Therefore, a complaint does not always mean the firm definitely did something wrong.
Instead, it means the customer believes there is a problem that should be looked at.
Complaints Should Be Taken Seriously
A firm should not treat complaints as an inconvenience.
Instead, they can reveal important problems.
For example, several complaints about the same issue may show:
- unclear communication
- weak staff training
- poor systems
- unsuitable sales practices
Therefore, complaints can help firms improve.
As a result:
A complaint can be both a customer issue and a warning sign for the business.
The Firm Gets the First Chance to Resolve the Complaint
In most cases, the customer should complain to the financial firm first.
This gives the firm a chance to investigate and put things right.
Therefore, the usual process begins like this:
Customer complains
↓
Firm investigates
↓
Firm responds
If the customer is still unhappy, another route may then become available.
The Firm’s Final Response
After investigating, the firm will normally send a final response.
This explains the outcome of the complaint.
For example, the firm may:
- uphold the complaint
- partly uphold it
- reject it
If appropriate, the response may also offer redress.
Therefore, the final response is an important stage.
How Long Does the Firm Have?
For many complaints, firms generally have up to eight weeks to provide a final response.
However, different rules can apply in some situations.
Therefore, advisers and firms should check the current FCA complaint rules when needed.
The main point is:
Complaints should be handled within set timescales.
What Happens If the Customer Is Still Unhappy?
If the complaint is eligible and remains unresolved, the customer may be able to refer it to the Financial Ombudsman Service, or FOS.
Therefore:
Complaint to firm
↓
Final response
↓
Customer still unhappy
↓
Possible referral to FOS
This gives the customer an independent route.
What Is the Financial Ombudsman Service?
The Financial Ombudsman Service helps resolve eligible complaints between consumers and financial businesses.
It is independent of the firm.
Therefore, it can look at both sides of the dispute.
For example, it may consider:
- what happened
- what evidence exists
- relevant law
- FCA rules
- industry practice
- what is fair and reasonable
So, the FOS does more than simply ask whether one technical rule was broken.
FOS Is Not the FCA
This distinction is important.
FCA
Regulates financial firms.
Meanwhile:
FOS
Looks at individual complaints.
Therefore:
FCA → Regulator
FOS → Complaint resolver
They have different roles.
FOS Is Also Not the FSCS
Another common confusion is between FOS and the Financial Services Compensation Scheme, or FSCS.
They are not the same.
FOS
Deals with disputes and complaints.
FSCS
May pay compensation when an eligible financial firm cannot meet claims against it.
Therefore:
FOS → Complaint
FSCS → Compensation after firm failure
This is one of the easiest ways to remember the difference.
A Simple Mortgage Complaint Example
Imagine a customer tells their adviser:
I plan to move within two years.
However, the adviser recommends a five-year fixed mortgage with a large early repayment charge.
Later, the customer moves and pays a large fee.
They may then believe the advice was unsuitable.
Therefore, they could complain to the firm.
If the firm does not resolve the matter, the complaint may be referred to FOS.
Evidence Matters
When a complaint is investigated, the available evidence is important.
For example, a mortgage complaint may involve:
- fact-find documents
- recommendation notes
- emails
- letters
- recorded calls
- mortgage illustrations
- application forms
Therefore, good records matter.
As a result:
If it affects the advice, record it clearly.
This helps both the customer and the adviser.
Why Good Records Matter
Imagine an adviser recommended a particular mortgage because the customer wanted long-term payment certainty.
However, there is no record of that discussion.
Later, the customer complains.
The adviser may remember the reason.
However, proving it becomes harder.
Therefore, clear records can help show:
- what the customer wanted
- what was considered
- why the recommendation was made
Complaint Time Limits
Customers normally need to raise complaints within certain time limits.
Broadly, complaints should usually be made within:
Six years of the event
or, if later:
Three years from when the customer knew, or should reasonably have known, they had cause to complain.
In addition, once a firm sends a final response, the customer normally has six months to refer the complaint to FOS.
Therefore, timing matters.
Exceptional Circumstances
Sometimes, a customer may miss a complaint deadline because of serious circumstances.
For example:
- serious illness
- bereavement
- incapacity
In such cases, the FOS may consider whether exceptional circumstances apply.
Therefore, time limits are important, but they are not always absolute.
What Can FOS Do?
If FOS decides that the customer was treated unfairly, it can require the firm to put things right.
For example, this may include:
- refunding charges
- paying compensation
- adding interest
- correcting records
- taking another practical step
Therefore, the aim is often to put the customer as close as possible to the position they would have been in if the problem had not happened.
Compensation Is Called Redress
You will often hear the word redress.
Redress means putting things right after a customer has suffered harm.
This may involve money.
However, it can also involve other action.
For example:
- correcting a credit file
- refunding a fee
- changing an account
- removing an unfair charge
Therefore:
Redress is wider than compensation alone.
Compensation Does Not Always Mean a Large Payment
A customer may receive compensation if they suffered financial loss or distress.
However, the amount depends on the circumstances.
Therefore, not every complaint leads to a large payment.
For example, the outcome may simply be:
- refund of a fee
- correction of an error
- apology
- modest compensation
So, the remedy should match the harm.
FOS Award Limits
The FOS has limits on the amount it can formally require a business to pay.
These limits can change over time.
Therefore, current figures should always be checked against the latest FOS rules.
For CeMAP, the important principle is:
FOS compensation is subject to formal award limits.
The date of the event and the date of referral can both matter.
What Is FSCS Compensation?
The Financial Services Compensation Scheme can become relevant when an eligible financial firm is unable to meet claims against it.
For example, the firm may have failed.
Therefore, the FSCS is a safety net.
It can cover certain eligible claims involving:
- deposits
- insurance
- investments
- mortgage advice
- other regulated financial services
However, the exact rules and limits depend on the product and circumstances.
A Simple FSCS Example
Imagine a customer has a valid claim against an authorised mortgage advice firm.
However, the firm has gone out of business and cannot pay.
In that case, FSCS may be able to consider the claim.
Therefore:
Valid claim
↓
Firm cannot pay
↓
FSCS may become relevant
This is very different from FOS, where the firm may still be trading.
Compensation Depends on Eligibility
FSCS protection is not automatic.
For example, it depends on:
- the type of firm
- the regulated activity
- the customer
- the nature of the loss
- the compensation rules
Therefore:
Not every financial loss is covered.
Current rules should always be checked.
Complaints About Mortgage Advice
Mortgage advice complaints can involve many issues.
For example:
- unsuitable mortgage type
- poor explanation of charges
- unsuitable term
- wrong repayment method
- failure to consider future plans
- poor affordability assessment
Therefore, advisers need to show how the recommendation matched the customer’s needs.
Complaints About Mortgage Lenders
Customers may also complain about lenders.
For example:
- poor arrears handling
- incorrect charges
- unfair treatment
- administrative mistakes
- poor communication
Therefore, complaint rules apply across many parts of mortgage lending.
Complaints and Vulnerable Customers
Vulnerable customers may need extra support when making a complaint.
For example, they may need:
- more time
- simpler language
- a different communication method
- help understanding the process
Therefore, complaint handling should take individual needs into account.
This links back to Page 22.
Complaints and Consumer Duty
Complaints can also help firms understand customer outcomes.
For example, repeated complaints about one issue may show:
- confusing documents
- poor support
- unfair fees
- weak processes
Therefore, Consumer Duty encourages firms to look beyond the individual complaint.
As a result:
Complaint data can help firms improve future outcomes.
Firms Should Look for Patterns
Imagine a firm receives 100 complaints about early repayment charges.
Even if each complaint is handled separately, the firm should also ask:
Why is this happening so often?
Perhaps:
- the charge is not explained clearly
- advisers are not discussing it
- documents are confusing
Therefore, complaint trends can reveal wider problems.
A Simple Complaint Process
A useful way to remember the process is:
Step 1
Customer raises complaint.
↓
Step 2
Firm investigates.
↓
Step 3
Firm sends final response.
↓
Step 4
Customer decides whether the outcome is acceptable.
↓
Step 5
If eligible and still unhappy, customer may refer the complaint to FOS.
↓
Step 6
FOS considers the case.
This creates a clear path.
What Should a Firm Do Well?
Good complaint handling should be:
- fair
- timely
- clear
- respectful
- well recorded
Therefore, customers should understand:
- what the firm decided
- why it decided it
- what happens next
This helps reduce confusion.
Complaints Should Not Create Barriers
A customer should not face unnecessary difficulty when making a complaint.
For example, a firm should not require:
- repeated calls
- unnecessary forms
- complicated steps
Therefore, the process should be accessible.
This also links with Consumer Duty.
Advisers Should Not Become Defensive
A complaint can feel personal.
However, advisers should remain professional.
Instead of thinking:
The customer is attacking me.
it is better to think:
What happened, and what does the evidence show?
Therefore, complaints should be handled objectively.
Learn From Complaints
A complaint can help an adviser improve.
For example, it may reveal that:
- explanations were too technical
- notes were unclear
- important points were missed
Therefore, complaints can support better future practice.
This does not mean every complaint is correct.
However, every complaint can still provide useful information.
A Full Mortgage Example
Imagine Sarah takes a mortgage.
She later complains that she did not understand the early repayment charge.
The firm reviews the file.
It finds:
- the charge was included in the document
- however, there is no record that the adviser explained it
- Sarah had said she might move soon
Therefore, the firm may need to consider whether the advice and communication were good enough.
This shows why both suitability and explanation matter.
A Simple Memory Aid
Remember:
Firm first
↓
FOS if unresolved
↓
FSCS if an eligible firm cannot pay
Therefore:
Complaint → FOS
Firm failure → FSCS
This is the easiest way to separate the two.
Key Terms to Remember
Complaint
An expression of dissatisfaction about a financial product or service.
Final Response
The firm’s formal decision after investigating a complaint.
FOS
Financial Ombudsman Service.
FSCS
Financial Services Compensation Scheme.
Redress
Action taken to put things right after customer harm.
Compensation
Money paid to a customer because of loss or harm.
Award Limit
The maximum amount FOS can formally require a firm to pay.
Complaint Time Limit
The period in which a complaint must normally be raised or referred.
Quick Knowledge Check
1. What is a complaint?
An expression of dissatisfaction about a financial product or service.
2. Who should usually receive the complaint first?
The financial firm.
3. What is a final response?
The firm’s formal decision after investigating the complaint.
4. What does FOS stand for?
Financial Ombudsman Service.
5. What is the main role of FOS?
To resolve eligible complaints between customers and financial businesses.
6. What does FSCS stand for?
Financial Services Compensation Scheme.
7. What is the main difference between FOS and FSCS?
FOS deals with complaints, while FSCS may compensate eligible claims when a firm cannot pay.
8. What does redress mean?
Putting things right after customer harm.
9. Why are good records important?
They help show what happened and why advice was given.
10. Why should firms look for complaint patterns?
Because repeated complaints may reveal wider problems.
Quick Summary
Complaints are an important part of financial regulation.
First:
Customer complains to the firm
↓
Firm investigates
↓
Firm sends a final response
↓
Customer may accept or challenge the outcome
If the complaint remains unresolved, the Financial Ombudsman Service may become involved.
Meanwhile, the Financial Services Compensation Scheme may become relevant if an eligible firm cannot meet a valid claim.
Therefore, remember:
FOS → Complaint resolution
FSCS → Compensation after firm failure
In addition, firms should use complaints to improve.
Repeated problems may show weak:
- communication
- advice
- systems
- support
Most importantly:
Complaints should be handled fairly, clearly and without unnecessary barriers.
For mortgage advisers, good records are essential.
They help show:
What the customer needed
↓
What was recommended
↓
Why it was recommended
That creates a clear and fair advice trail.
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