LONDON — Five unnamed U.K. banks are being forced to make major changes to the ways they deal with customer complaints, and two of them face possible fines, after the U.K. Financial Services Authority found evidence of "unacceptable standards" in the way some banks handle complaints.

Royal Bank of Scotland Group PLC in February had disclosed it was under investigation by the FSA for complaint handling. A spokesman Wednesday said the bank is continuing to cooperate with the FSA on the probe.

The findings came after an FSA review of several banking groups, collectively accounting for more than 70% of complaints reported to the FSA. Banks are required to collect data on complaints they receive and report it to the FSA every six months.

According to the Financial Ombudsman Service, a statutory body set up by Parliament to settle complaints between consumers and financial firms, U.K. banking customers post the most complaints about the country's five biggest banking groups: Lloyds Banking Group PLC, Barclays PLC, HSBC Holdings PLC, Banco Santander SA and Royal Bank of Scotland Group PLC.

People familiar with the matter said Santander and HSBC aren't among the five mentioned by the FSA, though. A Lloyds spokeswoman said it couldn't comment on conversations with the regulator, but said it takes all customer complaints very seriously, and is continuously reviewing its policies to ensure fair treatment.

A Barclays spokesman said he couldn't comment on the FSA announcement but that customer satisfaction is "key" for the bank, and that the majority of its customers are very satisfied with their banking relationship.

The FSA said it found poor standards of complaint handling within most of the banks it studied, resulting mainly from "weaknesses in banks' culture, particularly their governance arrangements, policies and controls."

The problems included a lack of senior management involvement and accountability on complaint handling, "poorly designed" staff incentive schemes that discouraged staff from settling complaints and otherwise making it difficult for customers to pursue a resolution to their complaints.

"While we found some good practice, there is clearly evidence of unacceptable standards of complaints handling in banks. Delivering change in this area is a major priority and we are determined to use all the tools available to us to ensure that banks comply with our rules," said Dan Waters, the FSA's director of conduct risk.

The FSA said five banks have agreed to make significant changes to their procedures, while two banks will be investigated further for possible regulatory breaches that could result in enforcement action including fines

The standards of complaint handling by U.K. banks has long been bemoaned by consumer groups. The Financial Services Consumer Panel, an independent body that advises the FSA on consumer issues, said the results of Wednesday's review "make dismal reading."

"This FSA report shows that the way banks are handling complaints is lamentable, and can cause real suffering to consumers. Banks will only really change their behavior when there is no escape from public scrutiny--and there is meaningful information available to show how banks are treating their customers. The FSA needs to take swift and effective action , and to continue its work to ensure published complaints data is as clear as possible," said Adam Philips, chairman of the panel.

While the FSA didn't name the banks, it said the review focuses on firms responsible for more than 60% of complaints resolved by the Financial Ombudsman Service. The FOS on its Web site lists units of Lloyds, Barclays, HSBC, Santander and RBS as the top firms subject to customer complaints on banking services in the six months between July 1 and Dec. 31, 2009.

The FSA is separately studying banks' handling of complaints on payment protection insurance offered on banking products, and on unauthorized overdraft charges.

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