We know the FCA wants to stop the weather getting cold (see my previous blog here). What we don't know is how quickly the FCA will be able to achieve this aim. Unfortunately, its prospects don't look great. Take two recent examples:

  1. On 15 November 2012, the FSA fined Card Protection Plan Limited ("CPP") £10.5 million for mis-selling Card and Identity Protection policies over a 6 year period.

The FSA's press release (available here) explained that "The FSA found widespread mis-selling of CPP's two main UK products". These products "were sold widely and CPP encouraged its sales agents to be overly persistent. This exposed a very large number of customers to  the unacceptable risk of [very cold weather...?] [buying products]* they did not want or need. Further, [the FSA] had already warned the firm that it might be misleading customers...but insufficient action was taken to rectify this".

The FSA's Final Notice (available here) added that "The FSA considers CPP's failings to be particularly serious because the problems with CPP's sales continued for more than 6 years, during which time CPP sold and renewed more than 23m policies".This was therefore "a serious case", which "warranted [the FSA's] joint largest retail conduct fine and generated a sizeable bill for consumer redress".What the FSA's press release didn't mention was that:

  • When the FSA carried out its first ARROW visit at CPP in April 2005, it found that the "lack of a well defined and robust risk management process could lead to the firm failing to identify and mitigate key risks to the business and consumers";
  • When the FSA carried out its second ARROW visit in February 2008, it found that "the risk to our statutory objectives [including the protection of consumers objective] ha[d] increased markedly to a high rating" and that CPP was "a significant outlier to its peers";
  • The FSA knew that leading professional services firms had submitted compliance reports to CPP in October 2008 and January 2011 (respectively), and those reports had also found systems and controls failures that were putting consumers at risk.

Even so, it was February 2011 before CPP agreed to amend its Card Protection product and sales process; and March 2011 before it agreed to stop selling its Identity Protection product through its own tele-sales channels.

Taken together, this seems to suggest that the FSA was prepared to leave consumers exposed to a cold weather risk between late 2008 and early 2011; and that if it had intervened in late 2008 or early 2009, as it ought to have done, CPP's fine and compensation bill would have been much smaller.

  1. On 29 November 2012, the FSA publicly censured Michele King, a partner in HD Administrators LLP ("HDA"), a two partner firm that ran a 422 member SIPP scheme until HDA went into liquidation on 25 June 2012. (The FSA's Final Notice is available here.)

Before joining HDA, Ms King had been an accounts administrator. Between April 2007 and June 2008, she carried out minor administrative tasks for HDA.  In June 2008, one of HDA's partners resigned, and Ms King became a partner in the firm. Shortly afterwards, the FSA gave its approval for her to perform the Partner Significant Influence Function. At the time, Ms King had little or no understanding of the Approved Persons regime, little or no understanding of the function or purpose of the FSA, and her knowledge of SIPP schemes was very limited. Ms King was censured for not doing enough to find out about her and HDA's regulatory responsibilities; and for not getting sufficiently involved in the day to day management of the firm.

If things were really that bad, it's no surprise the FSA has publicly censured Ms King. What is surprising that the FSA was prepared, at the height of the financial crisis, to approve her as fit and proper to hold a significant influence function in the first place.

The FCA is clearly an ambitious organisation, and it's heart is in the right place. But with cold winds blowing in from the FSA, it's clearly going to be some time before its sun starts to shine.