13th May 2016 by John Lappin
The public accounts committee has asked the Financial Conduct Authority to do more to understand where misselling is happening and what tools it can use to stop it in its latest report.
But the report itself demonstrates just why that task is so difficult. First the report indulges is a little bit of history. Claims chasers, it sighs, have taken nearly £5bn of the £22bn PPI misselling bill.
True, but it wasn’t misselling, and the previous watchdog the Financial Conduct Authority and its successor couldn’t exactly do much when for most of the time the chasers have benn in operation, it didn’t have responsibility for the sector. The FCA was given responsibility in the last Budget. Even now, in my view, little short of a ban on such firms, would really knock them out of the market.
The committee also warns about packaged bank accounts. There is a problem. Too many people have opted in to expensive banking when they are deriving little benefit. Yet the only way to really intervene would be to require people to constantly resign in to such arrangements. All the disclosure under the sun probably won’t make much of an impact. But bluntly, for all that the way these accounts have been marketed may leave a lot to be desired, it really shouldn’t make the top ten in terms of priorities for any financial watchdog that was doing it job. (This is, I stress, a personal view again, but packaged banking is relatively small beer.
Then we come to where the committee really hits that nail on the head – finally – the risk of misselling around the pension freedoms. It remains hugely important because scammers have proliferated. They have filled their boots and retirees and near retirees remain at great risk of transferring money to the wrong people and the wrong investments lured by headline rates of return in double figures. Yet even here, one wonders what the FCA can do. It has limited powers where it does not directly regulate things, so, for example, investors can do what they want with their own money even it that’s into a sure fire Bulgaria buy-to-let development.
In addition, the reforms were hugely rushed for political not financial policy reasons, the existing system is under huge strain and the courts aren’t helping with bizarre decisions preventing pension firms stalling transfers of pension money to untrustworthy sources. The FCA was caught on the hop by the speed of the reforms – new rules around the freedoms have just been issued – 12 months in. Another project aimed at making sure people can access more advice and guidance is only a work in progress.
The FCA does need to continually reassess how to stop misselling, but I think it has a fairly good idea what it can and can’t do. The government needs to help. And the Public Accounts Committee needs to understand that the FCA has to prioritise. Instead, we got a history lesson about PPI, a warning about an area of poor practice but one that should not be a priority, and then not enough detail about the real potential problem area, the tricky business where people turn their investments into a retirement income.
It is arguable that the pension freedoms have not been a disaster because most mainstream financial firms have learned some painful lessons from the past and want to do the right thing by customers. In addition, the British public have proved to be more sensible than some might have feared.
But while regulators need to be on their toes, reports like this need to be more detailed and to better understand where the problems lie.