NAO has reported on the regulation and redress for mis-selling of financial services products. It looks at the relevant regulatory authorities, FCA, FOS, FSCS and the Money Advice Service, and Treasury as their sponsoring body, in relation to how they coordinate their activities on mis-selling. Key findings include:
- the costs of regulatory responses to mis-selling, and of arranging for redress for consumers, are substantial, and some gaps in FCA’s understanding of the costs of its activities could hamper its decision-making;
- increased fines and redress payments appear to have substantially reduced financial incentives for firms to mis-sell products;
- FCA is taking a more active approach than its predecessor to identifying and responding to risks related to mis-selling, particularly for new products;
- overall, banks’ handling of complaints has been poor, requiring ongoing action from FCA and FOS;
- FCA does not evaluate its chosen redress schemes formally, making it hard to assess whether schemes achieve their intended outcomes; and
- although complaining directly to FOS is straightforward and free, many consumers who have been mis-sold financial products fail to receive full compensation, because of lack of awareness or reliance on claims management companies.
NAO concludes that regulators’ actions thus far have increased the prominence of mis-selling issues in financial services firms but that, due to the complexity of products, continuing commercial incentives to achieve sales, and the difficulties in changing cultures within firms, the risk of mis-selling remains. NAO goes on to make recommendations designed to build on FCA’s current strategy and increase confidence that it is achieving its intended outcomes for consumers, including:
- further develop its strategic view of the risks of mis-selling and its approach to tackling them;
- formalise its approach to evaluating redress mechanisms, including their costs, rates of uptake by consumers and how quickly they provide redress to consumers; and
- analyse alternative approaches to deciding whether products are mis-sold;
FCA and FOS should:
- work together to improve firms’ complaints handling, to develop better measures of the quality of complaints handling, and to publish the results; and
- work with firms to help consumers to access redress without using claims management companies;
- outline how quickly it expects to clear the backlog of payment protection insurance cases and report progress regularly; and
- strengthen FCA’s accountability by removing restrictions on the disclosure of FCA-held information on firms, where this is permitted in EU law.