Paul Farrow Farrow’s View
It would seem as though the FSA has seen the light following chief executive Hector Sants’ admission that treating customers fairly has “not delivered the outcomes that consumers deserve.”
Sants says its excuse for its failing is that “old-style” consumer protection regulation is, in his view, largely reactive, not proactive. Given that Sants joined the FSA five years ago, I am surprised it has taken him so long to work out that the regulator has been behind the curve all too often. He may boast of having collecting record fines in the past year but its record of being ahead of the game are few and far between.
The FSA has always been slow when it comes to protecting consumers and it continues to this day – the structured product and Lehman investigation being the latest example.
But go back over its lifetime and there are other cases where the FSA has been slow to grasp a problem. It refused to acknowledge there was a mortgage endowment problem and rejected calls for a full-scale review. It was several months before it heeded warnings in the press that precipice bonds were being sold by the shedload by bank advisers to the vulnerable.
Split-capital investment trusts were off its radar for some time after the collapse of the sector. It even disputed it was a “retail’ problem, although the 50,000 investors caught up in the saga confirmed otherwise.
Sants says he will be judged by results and by outcomes, which he believes that he has achieved over the last two years.
He says at the beginning of the year he wrote to bosses of firms asking them to stop selling single-premium PPI with unsecured loans -an area of the market with the highest risk to consumers, he says. He boasts of how the FSA agreed an indus-trywide package of measures for MPPI consumers, including refunds of £60m.
This is a hollow boast, as Sants should know, and is, perhaps, the biggest example of the regulator being reactive rather than proactive.
Which? reported problems with PPI almost 20 years ago in 1990 and has been fighting the consumer’s corner on the issue in earnest for years. The FSA has also long been aware of the problems of PPI. In its own investigation in 2005, it found that many PPI policies were “inappropriately” sold. It said salespeople were being elastic with the truth when it came to reveal the true cost and, crucially, under what circumstances people will not be eligible to claim.
Sants also asks us to judge him on the FSA’s major mortgage reforms as “another good example, which demonstrates the value our integrated approach brings”. But yet again, the horse has long since bolted and they will not address the problems caused by the Noughties’ housing boom and an era of reckless lending.
Consumers can take a smidgeon of comfort that the FSA has shown tentative signs it can be proactive. It caught up with venture capital trust industry for over-egging VCT tax benefits, it has been hot on the heels of equity-release providers and has been keeping a close eye on the growing Sipp market.
Consumers can also take some comfort that the FSA has recognised its TCF initiative has failed and that it has kicked into touch its misconceived light-touch approach to regulation.
They now stand a better chance of being given the level of protection that the City regulator owes them.
Paul Farrow is digital personal finance editor at the Telegraph Media Group