- Panel sees substantial risks products are still being missold
- Pension reforms may be trigger for more misselling in future
The U.K.’s Financial Conduct Authority hasn’t done enough to tackle the culture behind the misselling of financial products or to help consumers understand what they are being sold, a panel of lawmakers said.
There are substantial and continuing risks of products being sold improperly, the House of Commons Public Accounts Committee warned in a report published in London on Friday. It urged the regulator and the U.K. Treasury to “do more to know how much misselling is happening now, and which regulatory activities work best” to prevent it.
“The FCA has withdrawn a planned review of banks’ culture but has not articulated what culture it expects firms to have,” the cross-party panel said. “There is no guarantee that any improvements in cultures will stick as the regulatory spotlight moves away.”
More than 12 million U.K. consumers were improperly sold so-called payment protection insurance, and financial companies including Lloyds Banking Group Plc, Royal Bank of Scotland Group Plc and Barclays Plc have paid out more than 22 billion pounds ($32 billion) in compensation to customers since April 2011.
The FCA said that the end of the review didn’t alter its commitment to change the culture of banking.
“However, it is right that firms themselves take the responsibility for setting, shaping and maintaining their own culture, one with the interests of consumers at its heart,” the regulator said in a e-mailed statement.
New pension freedoms introduced by Chancellor of the Exchequer George Osborne, which allow people to withdraw their savings and spend them as they wish, “are a potential trigger for future mass misselling,” the committee said.
The panel called on the FCA to outline what action it plans to take to improve cultures in financial-services firms and to report back on their effectiveness in 12 months. The regulator should also announce measures to “ensure firms check consumer understanding of the products they purchase and of their rights to claim compensation, particularly for vulnerable consumers.” The Treasury and the FCA should also develop real-time indicators of the extent of misselling, the committee said.
The FCA said in July last year that “positive progress had been made to curb misselling,” though it warned that incentives offered to staff and the way their performance is managed can contribute to behavior that puts customers at risk.
The lawmakers also criticized so-called claims-management companies for taking commission of as much as 5 billion pounds in commission on compensation claims, saying this was “a failure of the system of regulation and redress.”