The changes are part of the regulator’s push to drive up standards in the industry.
In its consultation paper, the FSA has proposed abolishing the current two-stage complaints handling rule, in which customers must complain to firms first before waiting eight weeks before their case is referred to the FOS.
The FSA said it wanted to make sure firms resolve complaints fairly and do not merely dismiss them the first time, forcing customers to pursue the matter.
In addition, the FSA will require firms to identify a senior individual responsible for complaints handling, while offering additional guidance to help firms understand the process that needs to be in place to meet FSA requirements on root cause analysis.
The regulator has also proposed to require firms to take account of ombudsman decisions and previous customer complaints.
Meanwhile, the FSA confirmed that the limit on awards made by the FOS will increase from £100,000 to £150,000.
The FSA said that, despite the increase, it does not believe there will be any impact upon professional indemnity insurance premiums for firms.
It said: “Given the very small number of cases where redress is in excess of the current limit, it remains our view that the total impact on firms is not likely to be significant.”
Sheila Nicoll, the FSA’s director of conduct policy, commented: “We would rather customers were not put in a position where they had to complain, but when they do we want them to be treated fairly by their firm, with their complaint resolved promptly and being provided with redress when needed.
“Good complaints handling contributes to customer loyalty and should provide the opportunity for firms to put right problems in product design or sales before issues become widespread.
“But we have found major failures with the way firms handle customer complaints and have since taken enforcement action against two firms as a result of poor complaints practices.”
The Royal Bank of Scotland and Natwest was the first firm to be fined for complaints handling failures in April 2010, handed a £2.8m fine.
In May this year, the Bank of Scotland was also fined £3.5m.
The administrative costs of the FSA’s proposals to firms are estimated at £24m to £82m a year.
Firms have until 31 August 2011 to give their response to the consultation paper.