Introduction

Customer complaints are often the bane of compliance and legal departments. Because they are frequently time intensive, often factually involved and sometimes fraught with emotion, responding to customer complaints can consume significant resources.

The process of analyzing and reporting customer complaints will likely become even more complicated. Last year, FINRA revised Forms U4 and U5 in at least two significant respects. First, arbitration matters and litigation complaints alleging sales practice violations may need to be reported even if the representative is not identified in the caption of the complaint. The framework FINRA has created surrounding this requirement presents both operational and analytical challenges. Second, the forms now require the reporting of “willful” violations.

Although responding to and tracking customer complaints are usually thankless tasks, devoting attention to the process can be time well spent for a firm. Aside from the obvious benefits of running a compliant program, careful attention to customer complaints can help a firm manage risk. Consistent review of complaints can flag account holders who may not be a good fit for the firm, emphasize issues before they become problems, and highlight areas in which additional compliance efforts may be prudent.

Implementing or managing a customer complaint process in light of recent regulatory changes and market turmoil presents significant challenges. Some of the questions that the current regulations and prior practice create are discussed below, including what is a complaint, what is the difference between oral and written complaints, how to evaluate whether a complaint raises allegations of sales practice violations, questions that arise when reviewing arbitration or civil litigation claims, and threshold reporting issues. This article is not intended to be a comprehensive analysis of the customer complaint reporting process, but is intended to highlight issues that may arise in the current regulatory and economic climate.