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Regulate or compensate?

Misselling scandals have plagued the industry across product areas over the years but the Financial Ombudsman Service now says a surge in single issue complaints may see it act as a surrogate regulator.

In less than a year the Financial Ombudsman Service has received over 25,000 PPI complaints in what is the latest grey cloud to darken the industry’s skyline.

Chief ombudsman Walter Merricks 
says large-scale surges in complaints about single issues such as PPI and bank charges are now a regular feature of the FOS workload.

Writing in this month’s Ombudsman News, he says: “Traditionally, of course, the ombudsman’s role was seen as dealing with individual disputes relating to one-off issues. So some eyebrows may be raised at the idea of the ombudsman service now handling a workload involving thousands of similar complaints, all involving the same financial product or problem.

“The actions we necessarily have to take in order to address the complaints may result in our being accused of acting as a surrogate regulator, but that may be inescapable.”

Merricks goes on to say that issues directly affecting very large numbers of consumers should be resolved collectively rather than “relying on individual consumers each having to make their own separate complaint”.

He says: “If there has been widespread consumer detriment, widespread redress is needed.”

Informed Choice managing director Martin Bamford says it should actually be the regulator that reacts to widespread problems, giving “quick and decisive” guidance to the industry. That way firms can deal with complaints appropriately, eliminating the need for them to progress to the FOS.

But he adds the problem with blanket FSA solutions is that the regulator still does not understand the difference between advice and sales.

He says: “PPI sold en mass by a bank is very different to PPI that has been recommended by an adviser. There is a huge difference between the two scenarios and they have to be treated very differently. But we saw in the RDR that the FSA still doesn’t understand the difference between advice and sales.”

So is mass redress really the right answer? Or does it encourage consumers to file a complaint where they may have been sold the offending product but have suffered no loss as a result?

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