The Financial Conduct Authority should be doing more to prevent mass numbers of complaints from ending up at the Financial Ombudsman Service, Richard Lloyd has said.
Mr Lloyd, who has recently completed a review of the Fos, made the comments while addressing the Treasury select committee yesterday evening (18 July).
He said the ombudsman had been "completely distorted" by the huge number of payment protection insurance (PPI) complaints it has had to handle in recent years and the FCA should have forced firms to solve their clients' problems.
Mr Lloyd, former executive director of consumer rights organisation Which, said: "The FCA has the power to say to a regulated firm 'you have poorly treated, mis-sold, failed this large number of customers, this is what you need to do to put that right', a mandatory redress scheme.
"That's, in my view, what should have been done with PPI. In the end the Fos has ended up clearing up this mass mis-selling problem in a way that has completely distorted the organisation for a decade.
"What I would rather see is the regulator imposing redress schemes on firms that have harmed or caused consumer detriment in a large scale rather than to say to consumers 'it's up to you, you have got to raise a complaint and when that complaint has not been handled properly, you've got to go to the Fos and spend a few years of your life'.
"What has been missing in the debate about the Fos is that there is a bigger, more effective in my view, way of tackling these kinds of systemic or widespread consumer harms earlier which is for the FCA to use that power better to force the firm to put things right in the first place, proactively contacting its customers saying this is what they'll do to put it right, rather than to wait for the individual complaints to work through the system and potentially to end up at a Fos that has then got to scramble to work out what its position would be on TSB IT failures for example."
Treasury select committee member Rushanara Ali asked Mr Lloyd whether the buck was being passed to the Fos to sort of these mass mis-selling issues and he responded: "Precisely".
Ms Ali had asked Mr Lloyd about this issue in light of the IT failures at TSB, which saw nearly two million people being locked out of online banking services and the committee saying it had lost confidence in the bank's chief executive Paul Pester for his handling of the issue.
She asked Mr Lloyd whether there was a way for businesses which prompted a large number of complaints to "pay a heavy penalty" at the outset rather than force consumers to complain to the Fos.
The Labour MP said: "It has already been months since these problems have arisen, there are about 100,000 cases which they had dealt with when they last came to see us. Tens of thousands of them could be heading in the direction of Fos.
"These guys can shrug their shoulders and tell us it is all going to be fine, knowing very well that this stuff could take months, could take years while consumers suffer and the Fos isn't fit for purpose to address it, both in terms of resources and, in my view, powers to get this sorted.
"What we have is a systemic problem of consumers not being shored up by institutions of Fos because of resources and internal issues as well as powers."
His 53-page review of the Financial Ombudsman Service, published earlier this month, was launched after allegations made in the Channel 4 programme Dispatches that some decisions made by ombudsmen may have not been fair to consumers.
Mr Lloyd largely exonerated the Fos but he warned the service's strive for efficiency had begun to be seen by staff at the service as the "overriding priority" and he recommended that management shift the focus onto quality.
Another concern raised by Dispatches was that investigators did not have the knowledge to handle complaints, and Mr Lloyd found this could be the case for people new to the role - particularly given the Fos' move to a new model without specialisms.
Mr Lloyd said some of the issues raised by Dispatches were caused by the recent reorganisation which changed how complaints are handled.
The Fos' reorganisation has been taking place since 2016 with the aim of making it more responsive, and has consisted of a new structure where the person who first receives the complaint will consider the complaint - regardless of whether it is about a type of product they have specialist knowledge of or not.
Under the previous structure complaints were assigned to an adjudicator with specialist knowledge about the type of product the consumer was recommended.
Mr Lloyd said one of the problems with the reorganisation was that it had been "quite top-down" which had affected morale.
damian.fantato@ft.com
