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Categories:Advisers,Regulation

FSA: Industry is not learning from past misselling scandals

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The FSA says the industry is failing to learn the lessons of previous misselling scandals and claims it only has itself to blame for low consumer confidence in the financial services sector.

Speaking at a City and Financial conference in London earlier this week, FSA acting director of enforcement and financial crime Tracey McDermott said confidence in financial services was at an all-time low.

She claimed its reputation will not recover unless the public feels it will be dealt with fairly and professionally by financial services firms.

McDermott said: “The past few years have seen ever-increasing penalties for retail failings. Redress to customers from enforcement cases in 2011 alone exceeded £200m. And that is not to mention the significant sums which are being paid out in relation to the misselling of PPI.

“Yet, despite this, we continue to see failings which indicate the industry is not learning the lessons. It is not properly fulfilling its mandate of giving good advice to those who need it, ensuring markets are fair and that, where risks are being taken, they are understood.”

She cited the inappropriate investment advice given by HSBC subsidiary Nursing Homes Fees Agency to elderly investors, and advice to invest much of a client’s retirement fund into unregulated collective investment schemes as examples of the industry’s continued failings.

She added: “It is really no wonder that confidence is low and the industry, frankly has no-one but itself to blame.”

McDermott also discussed the new powers the Financial Conduct Authority will have to intervene at an earlier stage where it sees risk of consumer detriment.

She said the FCA will act where products seem useful but where a firm’s sales processes look likely to lead to significant misselling.

The FCA will also look to take action, including enforcement action, where aspects of a firm’s business model, such as product selection, remuneration, training or recruitment, risks poor consumer outcomes.

She added: “Obviously early intervention comes with risks, and with potential downsides for the regulator, the industry, and most importantly, for consumers.

“So the FCA will need to be targeted and proportionate in when, how, and why we intervene. We will also need to be prepared to be much more transparent, within the bounds of statute, about what we are concerned about and why.”

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Readers' comments (22)

  • By "the industry", I assume that Ms. McDermott is referring predominantly to the banks, given that the scale of mis-selling activities perpetrated by a few IFA practices, by comparison with those perpetrated by the banks, are smaller by a considerable order of magnitude.

    And what about the damage done to the reputation of the industry as a result of the FSA's failure to act on so many occasions ~ Keydata, HSBC/Aviva, MPPI, Northern Rock etc, etc?

    But no ~ it's all the fault of the industry, never the regulator.

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  • It's like the police blamning householders for a big increase in burglaries. Surely, the risk of being caught reflects the level of crime. One of the gems recommended by my local police concerned where to hide your car keys. This was in a report in the village mag. Do they think that criminals can't read or just that they never read out magazine?

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  • I think the IFA community would feel somewhat slighted to be parked in the same 'lot' as Banks where most of this has taken place.

    If as she says the industry "is not properly fulfilling its mandate of giving good advice to those who need it, ensuring markets are fair and that, where risks are being taken, they are understood,” then what is going wrong with a regulatory framework, set up by the FSA many years ago, that has allowed this bad practice to continue?

    Tom Baigrie was correct in saying "it is the rule-makers not the rule-breakers who are chiefly to blame because the Treasury and regulator have been unable to resist increasing their responsibilities to the point where no body in a free society can adequately discharge them. Rather than confining themselves to weeding out conmen and fraudsters, they have set out to ensure there is no way a consumer can strike a bad financial services deal".

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  • What a mavelous job the FSA is doing !!

    Why not get some more staff, levy a bit more money and carry on with the sterling work. Oh and dont forget to pay yourselves a bonus.

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  • I cannot disagree with McDermotts comments however, like Julian, I feel the failings of regulation are the biggest issue rather than blame 'the industry'. It is far to easy and a cheap shot.

    Surely it must strike the politians and regulators worldwide that the financial crisis happened at the same point in time when we have more regulation than ever before.

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  • And the FSA has clearly forgotten how to handle misconduct by fund managers - contrast Capita and Arch Cru with MGAM and Peter Young

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  • I've posted this e petition in an attempt to get MPs to put pressure on the FSA to take action against bank directors and senior management with control functions that are found to be responsible for miss-selling and making sure that these individuals are banned from the industry or personally fined just like an IFA would be.

    I think it is very unfair that IFA's and mortgage brokers are fined or banned if they are found to be responsible for miss-selling but the same is not true of our banking institutions even though the FSA does have the power to do so.

    Please take a look at the below link and sign the petition as things will not change until we get the FSA to enforce the rules for all!!!

    http://epetitions.direct.gov.uk/petitions/30166

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  • On the one hand, it is very easy to rise to this comment and ram home the message once again that the FSA doesn;t seem to learn from it's own far more damaging mistakes and for them to have this sort of brass-neck is taking a very large biscuit.

    On the other hand, they are of course correct.

    The "industry" does have itself to blame for the low esteem advisers are held. I use "advisers" here to highlight the lack of differentiation that consumaers apply and indeed it is worth pointing out that the FSA does occasionally refer to advisers as salesmen. What hope the industry if the regulator cannt differentiate between the two?

    Banks may be the biggest villains here of course, but there are sufficient numbers of other advisers who are in for the fast buck, treating clients like cash cows to allow the mud to stick to the "industry".Most of those advisers are of course in the salesman bracket.

    Bottom line here is that we have a confused industry regulated by a bureaucrat that has lost credibility and is simply lashing out at anything and everything.

    The industry has to improve itself, but it also needs to force the regulator to improve itself too or we will just lurch from farce to farce.

    It will always be pssible to find something to criticise anyone's work if one looks hard enough and it seems to me that this is what the FSA is going to continue to bank on, whilst steadfastly refusing to see fault in its own pathetic performance.

    Ian Coley
    Partner
    Medical Investment Services

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  • As it is not the iFA sector needs fixing (with some exceptions) why do we all continue to be tarred with the same brush, especially as consumer confidence in IFAs is extremely high.

    Maybe ALL advice in future should be conducted under the IFA banner and close down all direct sales channels.

    Hmmmm! There's a thought!

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  • If confidence is at an all time low. what Tracy appears to be saying is that 26 years of regulation and £bn's of other peoples money have worsened rather than improved the outcomes for most people.

    I predict that the situation will be worse after RDR which is driven by regulators and delivers a financial services landscape which is miles away in terms of complexity and accessibility to what any consumer might want.

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