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A consumer&#39s view

Nobody loves the regulator. Having them all in one place, now that the FSA has taken over as all-encompassing watchdog for the financial services industry, at least gives disgruntled practitioners a focus for their irritation.

It cannot be much fun being a regulator but there is one oft-complained of area in which they could make their job easier. It is a question of attitude. The most common complaint from the regulated is that FSA investigators move in and make you feel like criminals, even when it is simply a routine check-up with no evidence whatsoever of regulatory breaches or failures.

This is counter-productive. The regulator will be far more efficient if the inspectors do not go around behaving like the waterguard at a customs post embarking on a drugs raid.

Having said that, anyone who doubts that regulation was necessary or that widespread misselling in virtually all areas of financial provision has been going on for decades has only to look at just a few of the grim facts.

GL&P, formerly GAN Life and Pensions and currently Life Assurance Holding Corporation, has just been fined £1.4m for 10 years of deliberate obstruction and obfuscation of complaints from customers of the previous owners.

LAHC has been co-operating fully with the regulators and has reviewed 46,000 policies which resulted in compensation totalling a massive £35.4m being paid to 34,000 customers – roughly £1,000 per policy. There are a further 21,000 policies to review.

But what is most revealing about this case is that GL&P management had deliberately instructed complaints handlers to focus only on the specific complaint rather than looking at the wider issue for suitability of advice. This can only be interpreted as a deliberate attempt to avoid paying compensation. Consumers are not always entirely clear in expressing themselves about what it is that they feel is wrong.

And it is this rip-off “don&#39t admit anything and don&#39t pay up until you have to” attitude of product providers which is so slow to change. Even today, customers are being sold products which are unsuitable, often have high charges and in many cases poor performance, for no better reason than the commission earned.

Winterthur Life is a case in point and has just been fined £500,000 for endowment mis-selling. Around 10,000 customers are affected and an estimated £10m in compensation payments are due.

This was a recent problem that cannot be blamed on legacy business. As recently as 1998, it had in place a computerised sales system which allowed endowment-linked homeloans to be sold to homebuyers who should have had straight repayment loans.

Winterthur set up a system which allowed homebuyers who rated the “certainty that their mortgage would be paid off at the end of the term” very highly to be sold an endowment-linked loan.

The list of transgressions is depressing and IFAs are not immune. Recent announcements include a fine of £20,000 for IFA Douglas Deakin Young for pension review failings, £12,500 for IFA Alpha Delta and £50,000 fine for City Assurance Consultants for similar pensions review failings and suspension for Albion Management Services and a ban on new investment business.

But this is small beer compared with the £650,000 fine on the Pru for pension review failings, specifically for delays in making redress payments. Some of the breaches must have resulted from a deliberate decision by management to ignore the pension review process.

For example, the Pru had failed to keep records which were sufficient to show that it had complied with the requirements of the guidance on pension reviews.

The irony of this is that the Pru has just been awarded a quality mark from the Pensions Protection and Investments Accreditation Board under the Raising Standards scheme. This is a sick joke.

Since the beginning of this year, the FSA has taken disciplinary action against 93 firms with fines totalling nearly £6.6m. And all of this is some 13 years after regulation first came into force. The industry must realise that this is unacceptable. However much financial services companies whinge about the regulators, they have only themselves to blame.

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