Why customer understanding and complaint handling are more connected than firms think

The FCA’s latest Consumer Duty paper is really a complaints prevention lesson.

Customers who take the time to tell firms when something has gone wrong are doing more than raising an issue. They’re revealing weaknesses in your processes, communications, or support.

Complaint teams are then brought in to clear up the mess, but this doesn’t necessarily fix the problem. Without fixing the root cause, this approach will only work for so long. Commercial, operational, and regulatory risk starts to accumulate in the system.

A customer didn’t fully understand what they were told. A process was unclear. A vulnerable customer didn’t get the right support. A letter made sense internally, but not to the person reading it.

This is why the FCA’s paper, Consumer understanding: good practice and areas for improvement, matters. Initially, it looks to be about communications. In practice, it’s about whether firms can show that customers were given the right information, at the right time, in a way they could actually understand. The FCA expects firms to support customer understanding through design, testing, monitoring, and improvement, and it points firms to real evidence sources, including complaints, customer feedback and other evidence.

Complaints tell you where customer understanding is breaking down

One of the most useful things in the FCA’s wider Consumer Duty thinking is that it makes this link harder to ignore. Complaints aren’t just something to log, respond to, and report at the end of the month. They can show you what is tripping customers up, what they are misunderstanding, and how the journey is creating avoidable friction.

The FCA has been clear that firms should use evidence to understand where consumers struggle, and its complaints and root cause analysis work reinforces that complaints data and management information should be used to identify trends, causes, and areas for improvement.

Complaint data shouldn’t only show volumes, uphold rates, or turnaround times. Its value is in helping the firm spot patterns:

• Are customers getting stuck over the same wording?

• Are they misunderstanding the same policy exclusion?

• Are they chasing because they don’t understand the process?

• Are vulnerable customers finding the process harder to navigate than it needs to be?

Root cause analysis becomes useful here. When teams need to move beyond surface explanations and work out what is really driving repeat complaints, tools such as the Fishbone Diagram and 5 Whys help uncover what lies underneath the issue. See Why did this complaint occur? Using the Fishbone Diagram and 5 Whys to strengthen complaint handling.

At this point, complaints stop being just a number on a dashboard and start showing the firm what needs fixing. They highlight the processes that are creating effort for customers, extra work for staff, and unnecessary risk.

Why a complaint response can be technically correct but still unclear

The FCA paper becomes particularly relevant when you look at complaint handling, because a response can be accurate, carefully reviewed, and legally sound, yet still leave the customer confused.

Under the Consumer Duty, the FCA expects firms to give customers the information they need, at the right time, and in a way they can understand. It also says firms should consider testing communications where appropriate and communicate in ways that meet the needs of customers, including those in vulnerable circumstances. The same point applies just as much in complaint handling as it does in product journeys.

Why customers still come back with 'But what about…'

Most complaint handlers will recognise the pattern. A final response goes out. It covers the facts, explains the decision and includes the wording it needs. Then the customer comes back still unsure about what has actually been decided, why it was decided that way, what happens next, or what their options are.

It’s not always about disagreement. Sometimes the next steps are unclear and the customer just needs clarification.

Clear complaint responses reduce repeat contact and escalation

Teams often get caught out here. A letter can tick every internal box and still leave the customer not fully understanding the reason for the decision. If their response is “But what about…”, the communication has not done the job it needed to do. What follows is usually familiar enough: repeat contact, frustration, extra handling time, and sometimes escalation that might have been avoided with clearer communication at the start.

This is also where it helps to distinguish between closing a complaint and actually resolving it well. See the difference between managing complaints and resolving them well.

Why complaint communications cannot work without proper fact-finding

The FCA puts a lot of emphasis on evidence, monitoring, and testing, which makes sense when firms are designing and reviewing product journeys. But in complaints, there is a step that comes before all of that, and it often gets missed.

If the key information wasn’t collected in the first place, testing the communication at the end is only ever going to get you so far.

Clear communication cannot fix a weak investigation

A letter can be clearer, a template can be shorter, a paragraph can be moved higher up the page. But if the file is missing key facts, if the necessary questions weren’t asked, or if the investigation never got to the heart of the issue, the communication is still explaining a partial picture.

Firms can kid themselves a bit here. They tweak wording and call it improvement, but the real problem starts much earlier in the process.

• The handler didn’t have the full story

• The customer wasn’t asked the follow-up questions needed to get to the heart of the issue

• The context behind the complaint was never properly explored

The FCA’s Consumer Duty material says firms need enough information about customer needs to support good outcomes, and its complaints review makes the same broader point in a different way: weak MI, root cause analysis, and governance mean firms miss what complaints are really telling them.

Good complaint communication starts with good questions

Good communication at the end depends on good investigation at the start. If the file is thin, the questions are weak, or the customer’s circumstances haven’t been properly understood, the final response may still be neat, compliant, and completely incapable of settling the point that really matters to the customer.

So yes, test your complaint communications. Test whether customers actually understand the reason for the decision, the next steps, and their options. But don’t stop there. Test whether your process is helping handlers gather the key facts, ask better questions, and spot when more support is needed. Otherwise, you’re not testing understanding. You’re just tidying up the ending.

Complaints involving vulnerable customers should lead to better questions and records

Complaints are reactive by nature. By the time a vulnerable customer raises an issue, something has already gone wrong. But that doesn’t mean the complaint should only be handled as a one-off case to resolve and close.

It’s also a chance to understand where the firm’s policy, process, communication, or earlier testing failed that customer in the first place.

What a vulnerable customer complaint should help firms learn

Firms need to ask better questions:

• What happened?

• What was unclear?

• What support was missing?

• What assumptions were made?

• What did the customer need but not get?

• Was the communication fully understood?

• Did the process create extra effort, stress, or confusion that a different customer might have managed, but this one could not?

• What should we do differently next time?

At this point, complaint handling needs to do more than react to the issue in a one-off way. It should be used to help the firm see whether its systems are genuinely working for customers in vulnerable circumstances, or whether they only appear to work until someone struggles.

The FCA’s work on vulnerable customers and consumer understanding points firms toward identifying needs, adapting support, and making sure communications work in practice for customers with different needs and circumstances.

Why recording the insight matters

Once this insight is gathered, it needs to go somewhere useful. It must be captured clearly, linked to the case, fed into root cause analysis, and used to improve the process going forward. Otherwise, the firm has learned nothing except how to close another complaint.

This is the right place to go deeper into the practical side of handling these cases well. See a practical guide for complaint case handlers. Dealing with vulnerable customers.

If a complaint involving vulnerability doesn’t lead to better records, better insight, and some form of process improvement, the firm is at risk of repeated harm to vulnerable customers.

How complaint insight should be recorded, escalated, and acted on

Firms often come unstuck here. They collect complaint data, spot themes, and talk about root causes. They might even agree that a vulnerable customer complaint has exposed a weakness in the process. But, unless that insight is recorded properly, escalated to the people who can act on it, and used to improve something, the risk hasn’t gone away. It’s just been acknowledged.

The FCA’s work on complaints, board reporting, and Consumer Duty outcomes all point in the same direction: firms should use meaningful MI, ownership, feedback loops, and action tracking, rather than relying on observation without follow-through.

Complaint MI should lead to action

Good governance should do more than count complaints. It should help firms understand what those complaints are saying about customer understanding, which parts of the journey are failing, and what needs to change. That includes capturing useful detail at the case level, linking themes across cases, escalating issues that need attention, and being able to show what action was taken afterwards.

This is also where it becomes natural to think about structure. If information is scattered, records are ad hoc, and themes are hard to connect, the firm will struggle to turn complaint insight into action. Relying on spreadsheets and manual input makes this harder to achieve than it should be, and is the reason firms are increasingly turning to complaint case management software to help. See what is complaint case management software?

A firm doesn’t reduce regulatory risk just by resolving a complaint. It reduces risk by learning from it and acting on it.

Complaints don’t start the story. They show you where it began

This is probably the biggest takeaway from the FCA’s latest paper.

The FCA expects firms to support customer understanding with the right information, at the right time, in a way customers can understand, and to monitor and improve outcomes using evidence. Complaints are one of the clearest forms of that evidence.

Complaints seldom appear out of nowhere. They usually highlight something in the journey that didn’t work as it should have. A customer didn’t understand what they were told. The right questions weren’t asked.

Support didn’t adapt to their needs. A decision letter answered the process, but not the point the customer was really raising.

Done properly, complaint handling adds real value. It does more than resolve an individual case. It shows the firm where its communications, processes, and assumptions are starting to fail.

If firms pay attention, complaints can help them ask better questions, keep better records, spot the weak areas of testing, and make changes before the same issues come back again in different forms.

If complaint insight is still being buried in inboxes, spreadsheets, and disconnected notes, firms will keep learning the same lessons the hard way. For teams trying to move away from manual workarounds and make the case for change internally, this is often what starts the next conversation. See build a business case for complaint management software.

Frequently asked questions

Do complaints count as evidence under Consumer Duty?

Yes. Complaints are one of the clearest ways firms can see where customer understanding, communications, or support may be falling short. This fits directly with the FCA’s consumer understanding paper and the wider Consumer Duty expectation that firms use real evidence to assess whether customers are getting good outcomes. They shouldn’t be treated only as case volumes to report. They can also show why customers are getting stuck, what they are misunderstanding, and how the wider journey may need to improve.

Why does customer understanding matter in complaint handling?

Customer understanding matters in complaint handling for the same reason it matters anywhere else in the journey: if the customer cannot properly understand the information they are given, the firm risks repeat contact, frustration, and avoidable escalation. The FCA makes this exact point in its consumer understanding paper. Under Consumer Duty, firms are expected to give customers information they can understand and use at the right time.

Should firms test complaint communications as well as customer journeys?

Yes. Firms often spend more time testing product journeys, sales communications, or website wording than they do complaint communications. This creates a gap that firms need to close. Complaint acknowledgements, holding letters, requests for information, and final responses all shape whether a customer understands what is happening. The FCA’s consumer understanding paper focuses heavily on testing and evidence, so it makes sense to apply that same discipline to complaint communications as well, not just to product journeys. Testing shouldn’t stop at product communications.

What should a firm learn from a complaint involving a vulnerable customer?

A complaint involving a vulnerable customer should help the firm understand more than just the issue being raised. It should show where support, communication, process design, or earlier testing may have failed that customer. Firms should ask what was unclear, what support was missing, what assumptions were made, and whether the process created avoidable effort or stress. This also reflects the FCA’s wider expectation under Consumer Duty that firms understand and respond to customer needs, including where vulnerability affects how communications or processes work in practice.

How should complaint insight be recorded, escalated, and acted on?

Complaint insight should be recorded in a way that helps firms spot patterns, link related issues, and show what action was taken. That means capturing useful detail at the case level, connecting themes across complaints, escalating issues that need attention, and tracking whether changes were made. Good governance isn’t just about counting complaints. It’s about showing how complaint insight informs action. This kind of follow-through is also consistent with the FCA’s focus on evidence, monitoring, and action under Consumer Duty.

Can low complaint volumes still hide poor customer understanding?

Yes. Low complaint volumes don’t automatically mean customers understood the journey or got the support they needed. Some customers disengage, give up, make repeat contact without making a formal complaint, or only realise the issue later. Firms need a broader view that includes complaints, other feedback, behavioural data, and outcome monitoring rather than relying on silence as reassurance. This is why the FCA’s consumer understanding work matters. Under Consumer Duty, firms are expected to look at outcomes using evidence, not assume everything is working because complaint volumes look low.