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FCA faces uphill battle to monitor misselling impact

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The FCA faces a “notoriously difficult” challenge in seeking to justify its approach to tackling misselling, experts say.

Last week the National Audit Office reported the FCA had no way of measuring its success in curbing misselling in financial services.

In a report on regulation and redress, it said while increased fines and compensation have reduced the incentives to missell, the regulator “lacks good evidence” on its impact on misselling overall.

The NAO found gaps in the FCA’s oversight of misselling, and raised concerns the regulator’s complaints data does not identify when alleged misselling took place.

It said this means the FCA “cannot be sure it has chosen the most cost-effective way of intervening”.

Pinsent Masons consultant Chris Davidson says the data gathered by the FCA lacks granularity.

Firms report misselling complaints under broad categories, with limited information beyond a pure count of incidents.

Davidson says: “There are requirements on the data that have to be provided and all the way through that costs money. It becomes an expensive exercise for firms in itself.

“For firms to give the FCA any extra data will mean extra boxes and extra lines and system changes, all to bring in masses more data that it might not use. There needs to be a cost-benefit analysis carried out on all this.”

However, independent regulatory consultant Richard Hobbs says simply gathering more detailed complaints data would still leave the FCA subject to variables underpinning those complaints.

He says: “For example, are people less ignorant when it comes to their ability to complain?

“Subjectively, I would think that evidence like the lack of use for powers like past business reviews would suggest to me the misselling situation is improving, but the effectiveness of public policy is notoriously difficult to prove.

“You would need to recruit some serious economic and academic facilities to look at it. If I was in charge, I would set up units with explicit remits to locate ineffective regulation and weed it out. That way the FCA could show it is at least seeking to make itself as efficient as possible.”

The NAO says banks’ complaint handling has been particularly poor, with no noticeable fall in the complaints referred to the Financial Ombudsman Service that are subsequently upheld. The FOS has found in favour of consumers in 62 per cent of cases since April 2013.

While the FOS is commended for dealing with a huge workload due to missold payment protection insurance, 40,000 complaint cases remain outstanding after two years.

PPI continues to dominate complaints, with £22.5bn paid out to 12 million customers up to November. The NAO estimates claims firms received between £3.8bn and £5bn of this compensation.

Adviser view

Justin King, Chartered financial planner, MFP Wealth Management

When I look at the data we have to send the FCA, I often wonder what the cost benefit is because we send it over, and we do not know where it goes or how it really helps anyone. The regulator asks us all to be able to prove ourselves in what we are doing, so I would expect the FCA to make sure it has the same kinds of checks and balances in place to evaluate its own performance.


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There are 5 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 4th March 2016 at 9:29 am

    Since when has the FCA ever chosen the most cost effective way of doing anything at all? And the widely held view of the FCA’s GABRIEL returns is that they’re a complete waste of time because no effort is made to examine their content. Firms can enter any old data and, provided the totals cross-tally, the system demands nothing further. They don’t even ask simple questions such as Does your firm have adequate PII cover for all the areas of business on which it advises, hence the high failure rate of firms that have sold UCIS, with their liabilities falling on the rest of us by way of the FSCS.

    Whatever happened to proportionate and targeted regulation, as mandated by the Regulators’ Code? Completely ignored.

  2. I keep saying it but the FCA needs to pre-approve products and this should help greatly reduce or virtually eliminate crap new products coming to the market. If these new products are actually very good for end users, advisers (where needed) and providers then they should be about for a very longtime. If it means a delay of 3 or 4 months while this approval process goes on, then its a worth while exercise. Those that aren’t approved and need “tweaked” to become good enough to be let loose can be tweaked and a bit of a scandal can be averted. Those that are just pure crap should never get to market and the designing company be fined (for pure greed and not putting customers first or just plain incompetence). The fine should be big enough to make them think twice about designing crap again but nothing like the size of the fines that have previously been imposed for failings. The cost of the redress would be averted as the products would never have been sold. The FCA would be able to greatly reduce staffing level overall but hire product experts to scrutinise new products so their costs would reduce. The FOS should (in theory at least) be less in demand and the FSCS should hopefully need less funding in the future.
    It might sound too simplistic but simple is usually a good way to do things IMHO.
    Happy Friday everybody

  3. Douglas Baillie 4th March 2016 at 10:18 am

    I suspect that a great deal of the misselling is actually conducted by unauthorised advisers who do not put in any FCA returns.
    However, from what I do know, the FCA have been rather slow to pursue any unauthorised and unregulated firms, “because we don’t regulate them!”
    So once again, the unregulated are getting away with it, and the rest of us suffer the reputational damage and mounting costs of their uncontrolled activities.

  4. Very clear evidence that the FCA are indeed “retrospective” (no matter how much they try to deny this)…. by the time the FCA do any thing about miss-selling ( I agree with Douglas above, that the un-regulated adviser or product may well be the biggest problem) its well and truly past its sell by date ! also demonstrated by the closed book debacle.

    Marty, has also made a very important point in the regulation of the product…… its akin to trying to stop car accidents, by reducing speed limits (it never worked and never will) individuals will always break or ignore them, at the very least the authorities make sure every car is road worthy by testing (min MOT requirement) this should be the same for products and these should be levied as well !!

    The FCA like the FSA before them will always let the bombs drop and clear up after, and then make other people pay for the clearance of the demolition

  5. I think Julian Stevens makes some important points. If data is simply being collected and not analysed and acted on then it is a worthless exercise in terms of consumer protection and a needless cost for firms. If data is being used then I think the FCA should explain how. I also think there is a very important point about PI cover – it was always a key point with PIA supervision to ensure proper cover was in place for a firm.
    Marty Y also raises some important points but they are more difficult to answer. The FCA does pre-approve some products – UCITS. Unlike previous regulators the FCA also has an important new power, it can intervene to stop a new product. But maybe it is a bit too reluctant to use it? We were rather more heroic at the PIA – although we didn’t have such a power that did not stop me recommending RU64 to stop banks from selling pensions with high up-front charges in the run up to stakeholder pensions. And another factor to bear in mind is that poducts on their own may be OK but can cause problems when combined. Remember HIPS of the early 90s – a mortgage (OK) , an investment bond (OK0 but combine the two with rising interest rates, falling house prices, lower investment returns and a lot of elderly people got hurt.

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