Managing agents in the Lloyd’s market will face tough new conduct risk standards from January 1, 2016, but evidence would suggest many companies are slow to address the issue.
Covering a wide range of operational issues, including complaints handling, the new rules for Lloyd’s managing agents will require a great deal more information to be reported, much more frequently. This means businesses in the market need to take action very soon to ensure they have the processes and systems in place to comply by the end of year deadline.
For example, CR 12 of the new code addresses the issue of complaints. It says “a managing agent must have effective and proportionate product controls to ensure it handles complaints from a Lloyd’s customer fairly, having regard to their needs and reasonable expectations”. Both the Financial Conduct Authority (FCA) and Lloyd’s are sending a very clear message that treating customers fairly (TCF) must be at the heart of the business and the way complaints are handled is a key component of this.
In a clear sign the FCA means business, the regulator has just handed down a £117m ($182.9m) fine to Lloyds Banking Group for mishandling complaints in relation to payment protection insurance (PPI) sales. Georgina Philippou, FCA acting director of enforcement and market oversight, said: “If trust in financial services is going to be restored following the widespread mis-selling of PPI, then customers need to be confident their complaints will be treated fairly.”
A report issued by Lloyd’s in May this year highlighted the fact 27% of all complaints to Lloyd’s were failing to be reported within the required timeframe.
A further review of managing agents revealed only one of the 27 agents reviewed got a green light for complaints handling and nearly one-third got a red card. It would appear the market has a long way to go before it will meet the new stringent rules imposed by the regulators.
Why is the market failing so badly? This is probably down to a combination of factors: the market’s reliance on manual systems, information stored on spreadsheets and bits of information being passed from person to person.
All of this makes it almost impossible to run an effective and compliant process. Outdated legacy computer systems often only compound the problem, rather than helping towards the solution.
Captured and processed
In this new era of heightened regulatory control, companies will be forced to put robust systems in place ensure all complaints are being captured and they are being handled within the required timeframe and processed in an effective manner. Regulators will need to see evidence this is the case and this can only be demonstrated by the use of such systems.
For example, weekly reports will need to be prepared not only to satisfy Lloyd’s and the FCA but also to enable companies to demonstrate they are properly analysing the level of complaints, the causes and potential solutions.
The regulators will expect companies to demonstrate they have systems in place to interrogate the data properly and act on it to recognise and deal with areas of common dissatisfaction.
So what should a reliable and effective system do? Some of the features must include the following;
- Getting on the same page: it has to be recognised the complaint could originate at any one of a number of points; managing agent, broker, coverholder, third-party administrator, Lloyd’s and so on. Therefore, one of the first steps is to ensure there is a single location to which details of the complaint or expression of dissatisfaction can be uploaded. This will ensure work is not duplicated and all interested parties can access the details and the supporting documentation;
- Joining the dots: the process needs to be able to allocate responsibility and lay down timelines so an efficient process can be demonstrated, which works within the prescribed response times at all stages; and
- Keeping it clear: to ensure Lloyd’s has what it needs, reporting should be automated. The system should include a full audit trail and enable data to be quickly and easily interrogated so that management reports can be produced to highlight areas of concern (ie, which products are being complained about, who is being complained about and what are the reasons for the complaints). If this level of detail is not easily obtainable, it will be hard to demonstrate management have the correct systems in place to properly analyse their business.
While this might not appear to be terribly complicated, the deadline is very close and companies need to be putting systems in place now to ensure they can meet the new regime on January 1, 2016. Evidence would suggest many in the market have been slow to address this key area and professional automated complaints management facilities will be a requirement for all but the smallest operators in this sector.