FCA plans deadline for PPI complaints

The Financial Conduct Authority (FCA), which is responsible for the conduct supervision of all UK regulated financial firms and the prudential supervision of those not supervised by the Prudential Regulation Authority (PRA), announced on Friday that it plans to introduce a deadline for complaints about payment protection insurance (PPI).

Early this year, the FCA stated that it would be assessing whether there was a need for further intervention in PPI complaints handling generally, whereby consumers would need to make their PPI complaints or else lose their right to have them assessed by firms or by the Financial Ombudsman Service (the Ombudsman). 

Subject to consultation up to the end of 2015, a deadline would fall two years from the date the proposed rule comes into force. The FCA does not expect the ruling to become effective before spring 2016, therefore PPI consumers would have until at least spring 2018 to complain. This consultation will also set out plans for a proposed FCA-led communications campaign that will be designed to encourage consumers to complain in advance of that deadline, which will also include a proposed fee rule concerning the funding of the proposed communications campaign.

Following consultation, the FCA said it publish a paper before the end of the year, that will set out the full detail of these proposed rules and guidance; the evidence considered; reasons for the proposals; and an assessment of costs and benefits.

Since January this year, evidence has been gathered from firms, consumers through online surveys and discussion groups, as well as other stakeholders, regarding the PPI landscape and whether it is changing. An assessment has been carried out by the FCA as to whether the current approach is continuing to meet the objectives of securing appropriate protection for consumers and enhancing the integrity of the UK’s financial system.

According to the FCA, current complaints framework and its supporting supervisory work has resulted in compensation being paid to large numbers of consumers who were previously mis-sold PPI.

So far, more that GBP20bn redress has been paid to over 10 million consumers. But the FCA found that the large scale payment of redress has recently been accompanied by other trends such as a high and growing proportion of complaints are being made via claims management companies, with fee costs to the consumers who use them. Also a high and growing proportion of complaints relate to older sales (pre-2005 and even pre-2000), where the documentary evidence held by firms and consumers is likely to have significant gaps and recollections and oral evidence are becoming increasingly stale. In addition, there are a large number of complaints made that have turned out not to have involved a PPI sale.

The FCA said it considers that the introduction of a deadline and running a communications campaign would: prompt many consumers who want to complain, but have not yet done so, into action, resulting in them potentially getting redress sooner, and giving some of them the opportunity to pay off costly debt; and bring the PPI issue to an orderly conclusion, reducing uncertainty for firms about long-term PPI liabilities and helping rebuild public trust in the retail financial sector. Also, the FCA also considers that its intervention may encourage more consumers to complain directly to the firms, rather than using and paying claims management companies.

Lloyds TSB Bank and Bank of Scotland fined total of GBP28m by FCA

The Financial Conduct Authority (FCA) has found that certain Lloyds Banking Group (LBG) firms did not properly control higher risk features in financial incentive schemes for their staff, which resulted in advisers selling products to customers that they did not need or want in order to maintain or increase their salaries and earn bonuses.

The FCA, a regulatory body for the financial services industry in the UK, revealed on Wednesday that it has fined Lloyds TSB Bank plc GBP16,407,343 and Bank of Scotland plc GBP11,631,501, a total of GBP28,038,844 and the largest ever fine imposed by the FCA, for failing to ensure that their systems and controls were sufficient to mitigate risks in staff incentive schemes. Branches of Lloyds TSB, Bank of Scotland and Halifax (part of Bank of Scotland) were affected by the failings.

Lloyds incentive schemes reportedly led to a serious risk that sales staff were pressurised to meet targets to receive a bonus or avoid demotion, which resulted in customers being sold financial products that they did not need or require. For example, a Lloyds TSB adviser on a mid-level salary who failed to reach 90% of their target over a period of 9 months could have their base annual salary reduced from GBP33,706 to GBP25,927. If an advisor was demoted by two levels, their base pay would drop to GBP18,189, which would have equated to nearly half their salary being cut. One adviser is said to have sold protection products to himself, his wife and a colleague to prevent himself from being demoted.

The FCA added that the fine was also increased by 10% because the previous regulator, the FSA, had warned about the use of poorly managed incentive schemes over several years. Also, a previous disciplinary record, including an FSA fine on Lloyds TSB Bank plc for the unsuitable sale of bonds in 2003, was caused in part by the general pressure to meet sales targets. However an early stage settlement has been agreed, which means the firms qualified for a 20% discount. Without this discount the fines would have amounted to GBP35,048,556.

Tracey McDermott, the FCA’s director of enforcement and financial crime, stated:

“The findings do not make pleasant reading. Financial incentive schemes are an important indicator of what management values and a key influence on the culture of the organisation, so they must be designed with the customer at the heart. The review of incentive schemes that we published last year makes it quite clear that this is something to which we expect all firms to adhere. “Customers have a right to expect better from our leading financial institutions and we expect firms to put customers first – but firms will never be able to do this if they incentivise their staff to do the opposite.

“Both Lloyds TSB and Bank of Scotland have made substantial changes, and the reviews of sales and the redress now being made should right many of these wrongs.”