Tuesday, September 11, 2012

Regulator to target finance ‘bad practice’


The Financial Services Authority (FSA) has announced it will increase scrutiny of the incentivised selling of finance products, including car finance.
Martin Wheatley, managing director of the FSA and who will become head of the FSA replacement body the Financial Conduct Authority (FCA), told the Today programme he was acting on the “bad practice” seen in the furore over sales of payment protection insurance (PPI).
The FSA has already removed commission-based selling on investment products through the Retail Distribution Review but Wheatley said sales commissions on finance products would not be outlawed outright.
“We’re not banning it,” said Wheatley. “We’re just saying most of what we’ve seen just don’t work.”
‘The way the wind is blowing’
Peter Minter, managing director of Moneybarn and chairman of the motor finance division of the Finance & Leasing association said the announcement was “a good indicator of the way the wind is blowing” and was consistent with guidance by the Office of Fair Trading, from which some regulatory powers will be transferred to the FCA.
Regarding the effect on Moneybarn, Minter said: “We’ll have to be very sure of our incentive programmes with brokers and intermediaries.”
Likewise, David Kenmir, financial services regulatory partner at PricewaterhouseCoopers (PwC) advised a “need for firms to really get to grips with and demonstrate product suitability for customers…
“Firms will have to prove how they understand and appropriately manage customer risks as part of their day to day business, and they will need to define conduct risk appetite.”
Withdrawal and reparations
The announcement may surprise and disappoint to the industry which had recently witnessed ahigh-profile court case over PPI withdrawn and tougher action declared against claims management companies (CMCs) chasing a potential £9bn-worth of compensation payouts over PPI.
The withdrawal of an appeal to the Supreme Court in the case of Harrison v Black Horse at the end of August has appeared to put an end to a long-running claim of unfairness in the commission percentage charged by the lender in the payment of a PPI premium. Previous judgements in the case, including at the court of appeal, in favour of the lender had also sent positive signals to the industry.
Further protection of lenders, to the chagrin of CMCs, is a possibility should the Financial Ombudsman Service raise the threshold of PPI claim cases without the lender being charged a case fee from three to 25.
Meanwhile, CMCs could now face redress by the Legal Ombudsman and pay forced reparations themselves to customers over poor service as part of an independent complaints service for dealing with CMCs by the Ombudsman.

DATED: 11.09.12
FEED: MF





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