Clifford Chance

The Financial Conduct Authority (FCA) has published Consultation Paper CP25/13 (CP) to improve the Complaints Reporting process for regulated firms. The CP proposes changes to how firms report customer complaints, aligning with the broader emphasis of the Consumer Duty. This initiative reinforces the FCA's long-standing view that complaints and customer satisfaction metrics serve as important indicators of firms' treatment of customers and their adherence to effective complaints handling and root cause analysis.

Background

Regulated firms have submitted their complaints data to the FCA since 2002 and the process through which firms report this data was last reformed in 2015. Since then, the FCA has expanded its regulatory scope, resulting in a fragmented reporting process, inefficiencies and data inconsistencies which is particularly problematic for insurers operating across multiple product lines.

The CP identifies the following issues with the current reporting process, which the proposed reforms seek to address:

• Multiple complaints returns: Approximately 41% of in-scope firms submit multiple returns each period, creating data duplication that complicates comparative analysis and increases firms' workload. Firms receiving no complaints must still submit multiple nil returns.
• Complaints reporting scheduled by reference to a firm’s annual reporting date:  Reporting based on a firm's own accounting reference dates makes it difficult to compare data in a meaningful way, for instance during peak insurance periods like renewal seasons. This reduces the ability to detect trends in real time.
• Differing reporting formats based on number of reported complaints: As a different format is used for firms with under or over 500 complaints, it is difficult for firms around that threshold to decide which reporting format to use.
• Categorisation of complaints is unclear or outdated: The current complaints taxonomy fails to reflect modern financial products and services. Firms frequently use 'other' categories or free text boxes which creates an additional administrative burden on firms. It also means that data comparisons, including for benchmarking claims performance, are less useful.
• Group-level reporting: Complaints reporting at a consolidated group level obscures firm-level issues, limiting the FCA’s ability to analyse data and pinpoint sources of harm.
• Over-reliance on FOS and FSCS data: The FCA depends heavily on Financial Ombudsman Service (FOS) and Financial Services Compensation Scheme (FSCS) datasets, which capture only escalated complaints. This limited scope restricts the FCA's visibility of broader consumer harm risks.

Proposed changes

The FCA proposals relate to how firms report complaints, not how they actually handle them. The FCA is not altering the definition of 'complaint' or the existing timelines for resolving customer issues, either directly with the firm or through the FOS. However, insurers should note that the Treasury and the FCA are independently reviewing the broader system of customer compensation (redress) and the FOS's role. This parallel review could therefore lead to feature changes in how complaints are handled down the line.

1. Combining five current returns into a single consolidated return

The complaints reporting framework would be streamlined by replacing five existing returns with a single, consolidated return.

The proposal aims to promote consumer protection by increasing the FCA's ability to meaningfully interpret trends by avoiding potential misreporting or repeat and overlapping data. This, in turn, should help the regulator to detect and address harm more quickly, therefore enhancing market integrity. It may also foster effective competition by standardising reporting, allowing firms to benchmark their performance against peers more easily.

2. Two 6-monthly reporting cycles for all firms

All regulated firms would be required to submit complaints data twice a year – covering periods ending 30 June and 31 December and which align with key insurance renewal peaks – with submissions due within 30 business days of the close of each period.

This change is intended to enhance the FCA’s ability to detect sector-specific harms and respond more swiftly by aligning all firms to the same reporting timetable, improving its oversight and supervisory interventions.

3. Revised list of complaint categories

The list of complaint categories that firms use when reporting complaints would be updated and simplified with insurance specific products and services.

By refining the taxonomy, the FCA aims to improve the relevance of reported data, thereby supporting insurers to identify product lines and address areas where they may be falling short of their Consumer Duty obligations.

4. Aligning returns to firms’ permissions

The complaints reporting requirements would be tailored so that firms only report on activities for which they hold regulatory permissions. This would also ensure that specialty insurers (e.g., marine, aviation) only report relevant data.

The FCA hopes this will enhance consumer protection by ensuring that complaints data is more targeted and reflective of actual market activity, enabling firms to more easily identify the relevant returns (or sections).

5. Simpler reporting for nil complaints

The FCA acknowledges that the process for firms with no complaints during a reporting period is not efficient. If the proposed changes come into force, these firms will be able to submit a streamlined return. This simplified process will require only confirmation that no complaints were received, eliminating the need to complete the full return.

6. Removing group reporting

By removing the option for firms to submit complaints data on a consolidated group basis and instead requiring each regulated entity to report individually, the FCA hopes to improve the granularity and accuracy of complaints data.

This proposal directly supports the FCA’s strategic objectives. It strengthens consumer protection by enabling earlier and more targeted regulatory action. It promotes market integrity by ensuring that complaints data reflects the actual performance of individual firms. Furthermore, it supports effective competition by allowing for more meaningful benchmarking between firms, as each will be assessed on its own merits.

How will the changes be beneficial for insurers?

The FCA’s proposed changes to the complaints reporting process are designed not only to enhance regulatory oversight but also to deliver tangible benefits to firms. By enabling earlier identification of consumer harm, the proposals could reduce the severity and scale of consumer-related issues like claims mishandling before they escalate – minimising reputational damage and potentially lowering compensation costs. Timely and targeted FCA intervention, supported by more consistent and granular complaints data, may also lead to a reduction in the volume of complaints over time.

Operationally, the consolidation of multiple returns into a single, streamlined format should reduce duplication and the time insurers spend completing returns. However, the CP notes that the savings benefits from the consolidation of returns may be offset by moving from annual to biannual reporting.

Ultimately, these changes aim to make complaints reporting more proportionate, accurate and useful – helping firms to better monitor customer outcomes, meet their Consumer Duty obligations and engage more effectively with the regulator.

Are there any downsides for insurers?

While the FCA’s proposals aim to streamline complaints reporting, they also present several challenges for insurers – which potentially appear to be underestimated by the FCA's cost-benefit analysis.

For example, for large insurance groups that previously relied on centralised group reporting, the move to regulate entity reporting could create operational strain – particularly if individual firms lack the requisite infrastructure or expertise to report independently. It will increase the volume of returns submitted for a firm's group, raising questions about whether the FCA’s cost-benefit analysis fully accounts for this burden.

The shift to bi-annual reporting may disrupt existing internal processes, especially for firms that previously reported annually. Although the total volume of complaints remains unchanged, the increased frequency may require updates to systems and controls, adding to operational costs. For those 60% of firms who only currently submit one return, the cost of implementation may be disproportionate to any benefit.

Firms may also face costs associated with retraining staff and updating systems to interpret and accommodate the new format. While the FCA expects long-term efficiencies, these upfront investments could be significant. Firms may then pass on these costs to consumers, creating indirect downsides despite the overall consumer-focused intent of the proposals.

What should firms do to prepare for these changes if they are put in place?

It is important for insurers to review the prototype complaints return and the updated list of insurance product types (e.g., life, motor, property policies) that will underpin the new complaints categories. The proposed changes could significantly impact an insurer’s existing systems, controls and reporting processes – particularly legacy policy administration systems not designed for granular claims-complaint mapping – and may require IT upgrades to capture new insurance-specific fields (e.g., claims delays, non-renewal disputes), staff training on claims data categorisation, and internal policy updates. These are costs the FCA’s cost-benefit analysis may underestimate given the complexity of insurance product lines.

Insurance groups should also consider how the removal of group-level reporting and the 500-complaint publication threshold will affect them.

The FCA has proposed a 12-month implementation period, with the first reporting cycle covering the six months ending December 2026. For firms whose current reporting periods do not align with the new June/December cycle, transitional arrangements will apply – requiring a one-off report covering the period from their last submission to the start of the new regime.

Insurance firms are encouraged to respond to the consultation by the 24 July 2025 deadline, highlighting any specific concerns they may have, and begin assessing operational/financial implications now. The FCA will publish a policy statement later this year.