When the FSA bares its teeth to take on a subsidiary of one of the world’s biggest commercial entities, then the entire UK financial services sector should take heart.
At last, we can begin to believe that the regulation in place is a one-tier system equally applied to all. There have been numerous comments about the FSA only stalking smaller prey and refusing to take on bigger firms but the recent announcement of the enforcement action against GE Capital Bank goes some way to assuaging those fears.
The 610 000 fine may not break the bank of a company that sold over 850 000 insurance policies in 2005, many of which were payment protection insurance policies. However, it a very public message that poor practice will not be tolerated. Not only will the fine and adverse publicity be an unpleasant burden to bear but GE Capital Bank has also been required to undertake a comprehensive customer contact exercise to assess where cover has been missold and pay compensation.
This compensation may not equate to the same size of payments made in light of other financial scandals but it is still significant and the total bill is likely to be weighty indeed. There will also be the added bill for the firm to pick up in relation to undertaking the exercise in the first place, another cost it can ill afford in today’s competitive environment.
Firms should understand that if they are fined by the FSA, this will only be part of their punishment. Anyone operating outside the rules is not only shortchanging their clients but also practising false economy and will pay the price eventually.
There has been much written about the problems in the PPI sector and some may be getting fed up with it but the sooner we can sort out these problems, the sooner we can move on to something else.