The UK government has today admitted that the Financial Conduct Authority has failed to protect investors, following a deeply critical report into the handling of financial services mis-selling.
The UK government has today published its own conclusions via an under-the-radar, updated minutes document released by HM Treasury on its website.
The UK government’s conclusions on the controversial mis-selling of financial services products is based on a report entitled Financial Services Mis-selling: Regulation and Redress and published by the Committee of Public Accounts.
The government agreed with the report that the FCA has not done enough to tackle the “cultural problems that lie behind mis-selling” by financial services firms.
It has also accepted a Committee of Public Accounts conclusion that the FCA “does not do enough to ensure that consumers understand the financial products they are buying, and the possibility of claiming compensation.
It also agreed with the committee’s argument that more than £5bn in compensation relating to payment protection insurance (PPI) should not have been taken by claims management companies, and instead should have gone to consumers; and with criticism having to do with the large backlog of PPI claims that the Financial Ombudsman Service (FOS) has, which has meant many consumers have been having to wait for more than two years for a decision.
In a series of embarrassing admissions of culpability, the government was also forced to admit that “parliamentary accountability for financial regulation is undermined by restrictions” on the National Audit Office’s access to information held by the FCA.
Out of the six condemning criticisms and recommendations made by the committee, the government, the FOS and the FCA admitted responsibility for all but one.
They disagreed with the committee’s findings that the Treasury does not know how effective the FCA is in reducing mis-selling, and its contention that there are no good indicators of the current level of mis-selling.
Today’s conclusions follow the publication of a NAO report, on 2 March, from the Treasury, the FCA and the Financial Ombudsman on mis-selling of financial services. The public accounts committee originally published its conclusions on 13 May.
FCA: no further comment
In a statement released prior to the Committee of Public Accounts conclusions and today’s UK government response, the FCA said that it welcomed the NAO report and accepted its findings.
An FCA spokesperson today said that the authority did not wish to comment further on the matter, beyond pointing to its admissions and conclusions contained in the report.
These included an agreement by the FCA to recommendations that it should set out the additional measures it proposes to take to ensure that firms check their clients’ understanding of the products they’re buying; that it should set out how consumers – particularly the most vulnerable ones – should be able to claim compensation; and that it should report back to the committee on this work in a year’s time.
According to the report, the FCA also accepted the Committee of Public Account’s conclusion that many UK claims management companies, particularly those involved in handling PPI cases, should not have taken up to £5bn out of compensation that should have gone to consumers.
Claims management companies
The committee of public accounts recommended that the government and the FCA accept that HM Treasury and the Ministry of Justice should now report publicly on the “effectiveness of their actions” in reducing the role of claims management companies in PPI compensation.
The Treasury and the FCA should also demonstrate how they will ensure that these problems do not happen again with future schemes.
Retail Distribution Review
The FCA stated in the report that: “Tackling culture in firms has been a key area of focus for the FCA. It has carried out extensive work on accountability, incentives, remuneration and performance management through the Retail Distribution Review and the Mortgage Market Review.
“The Senior Managers and Certification Regime has accountability at its core and will ensure that individuals, their employers and regulators know who is responsible for what within regulated firms.”
Details of the full report have been published here in the ‘Treasury Minutes’ section of the government’s website. The full Financial Services Mis-selling: Regulation and Redress report is contained in the section marked “Fortieth” report.
In its statement that preceded the Committee of Public Accounts conclusions and today’s UK government response, the FCA said that it welcomed the NAO report and accepted its findings.
The FCA statement said: “The report recognises that the task of reducing mis-selling of financial services cost-effectively is a difficult one, and we welcome the NAO’s conclusion that FCA action including thematic work, changes to inducements, increased fines and redress payments appear to have substantially reduced financial incentives for firms to mis-sell products.
“It is unlikely that mis-selling could ever be eliminated completely. Our aim is to avoid and minimise it as far as possible, create the right incentives and culture in firms and to ensure appropriate redress for consumers and regulatory penalties for poor conduct are put in place when it occurs.
“The report makes clear that the recommendations, which we are accepting, are designed to build on the FCA’s current strategy and increase confidence that it is achieving its intended outcomes for consumers.
“Protecting consumers from the effects of mis-selling is central to what we do.”