Source: Insurance Age | 24 Feb 2016
Tags: FCA | FOS | Financial Ombudsman Service | PPI
National Audit Office says the FCA cannot be confident that its actions are reducing the overall level of mis-selling.
The Financial Conduct Authority (FCA) cannot know whether its actions are reducing financial mis-selling to consumers, according to a report by the National Audit Office (NAO).
The NAO said increased fines and redress payments appear to have substantially reduced financial incentives for firms to mis-sell products and that the FCA has made interventions to affect firm behaviour.
However, it stated in the report that the FCA does not have good evidence that its activities are reducing the overall levels of mis-selling, adding that in 2014 mis-selling accounted for 59% of customer complaints to financial services firms, compared to 25% in 2010.
The NAO added that gaps in the FCA’s overview of mis-selling create a risk that its interventions may not be well coordinated and means that the regulator cannot be sure that it has chosen the most cost-effective way of intervening.
Mis-selling was defined by the former Financial Services Authority as “a failure to deliver fair outcomes to consumers”, which can include providing customers with misleading information or recommending unsuitable products.
One example is the mis-selling of payment protection insurance (PPI), which made up 56% of complaints to the Financial Ombudsman Service in the second half of 2015.
The report further found that there has been no noticeable fall in the level of complaints about mis-selling upheld by the Ombudsman in the past five years.
It added that the Ombudsman had dealt well with an increase in its workload largely due to PPI cases and that in 2014-15 74% of complainants agreed that the FOS handled complaints efficiently and professionally.
However, in 2015-16 so far PPI cases have on average taken three times as long to process, compared to 2011-12, and the report also said there remained a substantial backlog of complaints, with almost 40,000 cases still outstanding after two years.
In addition, the report found that many consumers who had been mis-sold financial services failed to receive full compensation, because of a lack of awareness or reliance or claims management companies.
Amyas Morse, head of the National Audit Office, said: “Mis-selling of financial products remains a major problem for Britain’s consumers. The regulatory and redress bodies have increased the prominence of mis-selling issues in financial service firms and £22bn has been paid out in PPI compensation since 2011.
“Legislative restrictions limit my access to information that the FCA holds on firms making it impossible to draw definitive conclusions on its approach.”
He added: “The information my staff could see, such as customer complaints, does not show any clear reduction in the extent of mis-selling.
“The FCA cannot be confident that its actions are reducing the overall level of mis-selling, and it has further to go to show it is achieving value for money.”
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