The GAP complaint and the missing demands-and-needs records
Kestrel Insurance Services Ltd is a 12-person general insurance broker. On 3 March Mr Okafor complains in writing that in 2022 he was sold GAP insurance with a car finance agreement; he says he was never told it was optional and paid £399 for cover he now sees advertised at £120. Raj, who made the sale, is also the firm's only complaint handler; he acknowledges the complaint by telephone on 5 March and issues a final response on 30 April offering £50 'as a gesture of goodwill'. Mr Okafor refers the matter to the Financial Ombudsman Service on 10 June. A separate audit finds that in 43 of 200 GAP sales since 2022 no demands-and-needs statement was recorded.
1. Was the complaint handled in accordance with the FCA's complaint-handling rules? Identify every defect and state whether the Ombudsman can take the matter on.
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Timeline. Under DISP a complaint must be acknowledged promptly and resolved within eight weeks of receipt. Eight weeks from 3 March fell on 28 April. The final response on 30 April was two days late, and by then the firm should have issued either a final response or a written holding response explaining the delay and setting out the referral right to the Financial Ombudsman Service.
Substance. A final response must tell the customer clearly that the firm has finished investigating, that they may refer the matter to the Ombudsman if dissatisfied, and that this must normally be done within six months of the final response.
Independence. Raj handled his own sale. There is no requirement in DISP for a formally separate function, but complaints must be handled by competent people with the authority to settle, and a self-review is a plain conflict of interest that is inconsistent with the Consumer Duty outcome on consumer support and with the impartiality the FCA expects. The offer of £50 as a 'goodwill' gesture, without any finding on whether the sale was compliant, indicates no root-cause investigation took place.
Ombudsman jurisdiction. Mr Okafor referred on 10 June - within six months of the 30 April final response, and well within the six-years-from-the-event and three-years-from-knowledge limits, the sale being in 2022. He could also have gone to the Ombudsman at any point after 28 April because the firm was out of time. The FOS can take the complaint on, and the firm must not treat it as premature.
2. Which regulatory obligations are engaged by the original sale and by the audit finding, and how do they interlock?
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Product disclosure (ICOBS 4). The firm must disclose its status and any remuneration in good time before the sale, so the customer can make an informed decision - including the fact that the product was optional and that cheaper alternatives existed.
Demands and needs (ICOBS 6.1). The firm must specify the demands and needs of the customer and their reasons for recommending the product, and must record it. A statement of demands and needs is not optional paperwork; it is the evidential foundation of the advice. Its absence in 43 cases makes the recommendation effectively unverifiable.
Product governance and fair value (PROD 4). The firm must ensure the product offers fair value and that its distribution arrangements do not create detriment. A £399 product against comparable cover advertised at £120 raises an obvious fair-value question, which the distributor must consider and be able to answer.
Consumer Duty (PRIN 2A). Four outcomes: products and services, price and value, consumer understanding, consumer support. GAP sold alongside finance engages price and value and consumer understanding directly. The rules extended to closed products from 31 July 2024, so the 2022 book is squarely within scope now.
SM&CR. Someone in the firm holds the senior manager responsibility for conduct and complaints; the audit finding is a governance failure, not just an adviser failure. Raj should not sit as judge of his own sales.
3. What is the firm now obliged to do about the 43 sales and the FOS complaint? Give the sequence.
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1. Deal with Mr Okafor properly. Withdraw the £50 gesture. Re-investigate through someone independent of the sale, apply the fair-value analysis against the market, and be prepared to offer a full premium refund plus interest if the sale was non-compliant. The FOS can make an award binding on the firm (the limit is £430,000 for complaints referred on or after 1 April 2024 - irrelevant in size here, but the principle matters), and can direct a refund of premium and interest.
2. Redress the 43. This is a probable systematic failure, not 43 coincidences. The firm should conduct a past-business review, contact the affected customers proactively rather than waiting for complaints, and offer refunds where the sale cannot be shown to have been compliant. The Consumer Duty expectation is that foreseeable harm is avoided, not compensated late.
3. Fix root cause. Introduce a mandatory demands-and-needs statement as a system control, not a memory exercise; add a second-pair-of-eyes review of GAP sales; separate complaints handling from advice; and retrain on the status of optional add-ons.
4. Notify the regulator. Principle 11 requires full and frank disclosure of anything the FCA would reasonably expect notice of, and SUP 15 requires notification of a material breach or of a systematic problem likely to be relevant to supervision. A firm that self-reports, quantifies the harm and shows a remediation plan is treated differently from one that waits to be found out.
Conclusion. The firm's exposure is not the £399; it is the 43 unverifiable sales, the conflict in complaints handling, and the risk of a supervisory finding that the culture, not the process, was at fault.