The National Audit Office has reported its findings on the roles and effectiveness of the FCA, FOS and the FSCS in the management of mis-selling cases.
Whilst the NAO's conclusions were generally supportive of their approach, they found that the FCA is unable to determine whether its activities are reducing the overall scale of financial services mis-selling to consumers, despite increased fines, redress payments and regulatory interventions.
For instance, whilst the FCA holds data on how many complaints relate to mis-selling in any given year, it does not hold data on when the alleged mis-selling, giving rise to the complaint, took place. As a result, it cannot establish the extent to which its activities are having an impact on current claim trends.
The NAO did find that the FCA had put in place systems and approaches to regulation in order to improve its effectiveness. For instance under a strategy launched in December 2014, the FCA is developing "common views" to bring together data and intelligence to help it analyse what is happening across regulated sectors and to identify the right interventions – which is intended to help it to inform its decisions on what to prioritise and to improve its understanding of risk.
However, the NAO considered that there were areas for improvement in this regard also. For instance, the FCA does not yet systematically draw together aims and success criteria for related intervention, evaluate how they fit together, or link the outcomes of interventions to their costs. The NAO consider that this creates a risk that interventions may not be well coordinated, and means that the FCA cannot be sure that it has chosen the most cost-effective way of intervening.
The NAO did conclude that the FCA is taking a more active approach than its predecessor in identifying and responding to risks related to mis-selling, particularly for new products. For instance, the NAO obtained evidence of the FCA actively using its powers to stop the sale of unsuitable products to retail customers (see contingent convertible securities) and identifying pension reform as a possible trigger for future mass mis-selling. In addition, the NAO notes that increased fines and redress payments appear to have substantially reduced financial incentives for firms to mis-sell products.
However, as a result of the lack of co-ordinated data, linking regulatory strategies to consumer outcomes, the NAO's view is that the FCA has further to go to demonstrate that it is achieving value for money. One of the NAO's recommendations is for the FCA to communicate its expectations clearly and consistently to firms, and work with the Ombudsman to assess regularly how it is affecting how firms and individuals weigh up the potential risks and rewards of mis-selling.
The FCA has confirmed that it is accepting all of the NAO's recommendations – which for the most part require it to continue and build upon existing strategies. However, with mis-selling complaint numbers apparently on an upwards trajectory (in 2014 mis-selling accounts for 59% (2.7 million) of customer complaints to financial services firms, compared with 25% (0.9 million) in 2010) – and a 6 year limitation period for claims arising from mis-selling - only time will tell if the FCA's approach can ultimately reduce the mis-selling liabilities for financial services firms and their insurers.
On 2 March 2016 the Public Accounts Committee is holding a session on financial services mis-selling further to this report and we will report further on any news.