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Banks face barrage of misselling claims under new FSA rules

Banks will have a tough time adapting to the FSA’s new regulatory regime which could open them up to new misselling claims, says law firm Reynolds Porter Chamberlain.

The FSA announced earlier this month that it is considering whether to extend its remit to “everyday banking” when it takes on new powers over banks and building societies in November 2009.

The regulator says it is looking to create a level playing field by extending its rules on investment and insurance to banking activities currently monitored by the Banking Code Standards Board.

The FSA argues that there may be little difference between a structured investment product and a structured bank deposit, both of which may be linked to stock exchange ind- ices but are subject to different regulatory rules.

RPC partner Jonathan Davies says such a move could open up the banks to misselling claims while treating customers fairly requirements could outlaw some current banking practices.

He says: “Under the new proposals, the banks could be exposed to a whole new range of expensive misselling claims. The FSA has highlighted that one of the main problems of the current voluntary regulation of banks through the Banking Code Standards Board is that the BCSB does not have the power to impose fines.

“It remains to be seen what well established current practices may be outlawed by treating customers fairly. For example, many banks have been criticised for reducing interest rates on existing accounts while offering headline-catching high rates to new customers. This could be viewed as unfair under the FSA’s rules.”

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