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.