FSA Annual Report 2006/07 - Better Regulation Ltd
FSA Annual Report 2006/07 - Better Regulation Ltd FSA Annual Report 2006/07 - Better Regulation Ltd
118 Section six – Appendices Appendix 2 Payment protection insurance We share the Panel’s concerns about this market and we are currently undertaking one of our biggest exercises ever in the retail market to help to mitigate the risks to consumers. In January 2007 we announced a third extensive review of PPI sales involving over 150 new and follow-up visits to firms and mystery shopping. Through this work we are committed to ensuring that firm selling practices are improved and that those firms that fall short of expected standards are identified and action is taken. As part of this phase, we also plan to collect certain key data on a monthly basis from some of the larger firms operating in this market. We believe this data will help us to ascertain the state of the market and monitor on-going changes and, more importantly, enable us to assess a firm against its peers. At the same time, the Office of Fair Trading has referred the UK PPI market to the Competition Commission (CC) for further investigation. The CC will investigate aspects of the PPI market over which the FSA has no power, including whether any feature, or combination of features, of the PPI market or markets prevents, restricts or distorts competition. We are working closely with the CC. To date, we have taken enforcement action against nine firms for breaches in relation to PPI sales. These firms have been fined a total £1.6m but the overall costs of remedial programmes and compensation are significantly higher. Firms are contacting over 1.3m consumers and where appropriate will offer them compensation. We have publicised the findings of our enforcement investigations to raise awareness in the market of the standards we expect. Financial capability We welcome the Panel’s support for the National Strategy for Financial Capability. We recently met with the Panel to discuss their concern about the elderly being excluded from the Strategy. We found the meeting very useful and welcomed the opportunity to discuss the issues facing older consumers and how we can reach them. We hope the meeting provided the Panel with a clear picture of the wide range of work the FSA is already undertaking concerning older people, which includes: • assessing whether the industry is meeting the financial needs of older consumers; • increasing the reach of our consumer information aimed at older people as well as, in the autumn, raising awareness of the decisions consumers need to take at retirement; and • using our Innovation Fund to prioritise and provide financial assistance to a number of projects run by intermediaries aimed wholly, or in part, at improving the financial capability of older people at a regional and national level. More principles-based regulation As part of our move to more principles-based regulation we are committed to simplifying and shortening our Handbook. We are focusing particularly on those areas of the Handbook where the benefits of removing detailed rules seem to be greatest, and where other changes, such as the need to
Section six – Appendices Appendix 2 119 implement EU directives, offer us an opportunity to introduce changes with the least additional disruption and cost. In changing these parts of the Handbook we have aimed, where possible, to move away from detailed, process-orientated rules and have relied more on high-level, outcome-focused principles and rules. As with all changes we make to our Handbook, we will consult on proposals before making any changes and all proposed changes will be subject to rigorous cost-benefit analysis. We expect principles-based regulation to achieve benefits for consumers by encouraging the senior management of firms to focus on the Principles and by fostering a more innovative and competitive financial services industry. Industry guidance To help firms determine how best to meet our expectations under more principles-based regulation we see a greater role for sector-specific guidance and support provided by industry associations, professional bodies or groups of firms. We will respond more fully to the feedback we received on our Discussion Paper in the third quarter of 2007, but where guidance has an impact on consumers an important factor in deciding whether we confirm the guidance will be how industry bodies have sought and considered the views of consumer representatives in the development of their guidance. Conduct of business simplification We are making a series of changes to simplify our conduct of business regime for investment business and, at the same time, to implement the Markets in Financial Instruments Directive. Our new rules will be consistent with our move towards a more principles-based approach to regulation. Rather than reducing the level of protection for consumers this approach should lead to a greater alignment of business and regulatory objectives, which in turn should benefit consumers by creating a more competitive and innovative market place. We will carry out a post-implementation review of the new Conduct of Business sourcebook to assess whether the desired outcomes for both consumers and firms are being achieved in practice. Most respondents to the consultation agreed with our proposal to remove the excessive charges rule, which we have never used or taken enforcement action under. Firms should, however, have regard to the new requirement to act honestly, fairly and professionally in accordance with the client’s best interests. It was not our intention to make any policy changes in the conduct of business rules applying to with-profits, simply to improve their wording and move to higher-level rules in some areas where this would not affect, or would improve, outcomes for consumers. We have sought to make this clearer in the rules we have now made. Costs and benefits of regulation Deloitte published their report on the costs of regulation in June 2006. Most of the rules identified as imposing the highest incremental costs were in the retail investment and pensions advice sector and related to point-of-sale disclosure. We are using the results of the Deloitte study to assess the benefits of some of the regulatory requirements that generate the highest incremental costs. The benefits of regulation flow from improvements in market outcomes that would
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118<br />
Section six – Appendices<br />
Appendix 2<br />
Payment protection insurance<br />
We share the Panel’s concerns about this market and we are currently<br />
undertaking one of our biggest exercises ever in the retail market to help to<br />
mitigate the risks to consumers. In January 20<strong>07</strong> we announced a third<br />
extensive review of PPI sales involving over 150 new and follow-up visits to<br />
firms and mystery shopping. Through this work we are committed to<br />
ensuring that firm selling practices are improved and that those firms that<br />
fall short of expected standards are identified and action is taken.<br />
As part of this phase, we also plan to collect certain key data on a monthly<br />
basis from some of the larger firms operating in this market. We believe this<br />
data will help us to ascertain the state of the market and monitor on-going<br />
changes and, more importantly, enable us to assess a firm against its peers.<br />
At the same time, the Office of Fair Trading has referred the UK PPI market<br />
to the Competition Commission (CC) for further investigation. The CC will<br />
investigate aspects of the PPI market over which the <strong>FSA</strong> has no power,<br />
including whether any feature, or combination of features, of the PPI market<br />
or markets prevents, restricts or distorts competition. We are working closely<br />
with the CC.<br />
To date, we have taken enforcement action against nine firms for breaches in<br />
relation to PPI sales. These firms have been fined a total £1.6m but the overall<br />
costs of remedial programmes and compensation are significantly higher.<br />
Firms are contacting over 1.3m consumers and where appropriate will offer<br />
them compensation. We have publicised the findings of our enforcement<br />
investigations to raise awareness in the market of the standards we expect.<br />
Financial capability<br />
We welcome the Panel’s support for the National Strategy for Financial<br />
Capability. We recently met with the Panel to discuss their concern about the<br />
elderly being excluded from the Strategy. We found the meeting very useful<br />
and welcomed the opportunity to discuss the issues facing older consumers<br />
and how we can reach them. We hope the meeting provided the Panel with a<br />
clear picture of the wide range of work the <strong>FSA</strong> is already undertaking<br />
concerning older people, which includes:<br />
• assessing whether the industry is meeting the financial needs of older<br />
consumers;<br />
• increasing the reach of our consumer information aimed at older people<br />
as well as, in the autumn, raising awareness of the decisions consumers<br />
need to take at retirement; and<br />
• using our Innovation Fund to prioritise and provide financial assistance<br />
to a number of projects run by intermediaries aimed wholly, or in part, at<br />
improving the financial capability of older people at a regional and<br />
national level.<br />
More principles-based regulation<br />
As part of our move to more principles-based regulation we are committed<br />
to simplifying and shortening our Handbook. We are focusing particularly<br />
on those areas of the Handbook where the benefits of removing detailed<br />
rules seem to be greatest, and where other changes, such as the need to
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