PPI claims top £3.5bn since 2011

Financial services firms, including insurers, have paid out about £3.5bn in compensation for payment protection insurance (PPI) claims since the start of 2011, according to the Financial Services Authority’s (FSA) 2011/12 annual report.

In his statement, chairman Lord Turner said that while firms were addressing the complaints and were contacting people who may have been mis-sold a policy but had not made a complaint, the FSA regulation of the sector in the past had been ineffective.

“The latest estimates put redress paid since January 2011 at about £3.5bn; the scale of customer detriment and ever growing compensation bill sadly suggest that PPI is another chapter in the sustained litany of mis-selling scandals, which have eroded customer trust in the UK retail financial services,” he said.

“They also illustrate, however, the ineffectiveness of the FSA’s past approach to conduct regulation, which failed to intervene early enough, or far enough in the product development and marketing chain, to address problems before they produced major customer detriment.

“In response therefore, and as described in this report, we are reforming our approach to conduct supervision as radically as on the prudential side, and the processes, skills and resources on the FCA are being designed to ensure a more effective approach in the future.”

The FSA’s report, which published its report yesterday and outlines how the Authority performed against its business plan priorities and objectives, is likely to be the final annual report the FSA produces before the transition to the Prudential Regulation Authority (PRA) and the Financial Conduct Authority (FCA). The change will occur in early 2013.

Reflecting on his term, Turner said: “Over the last four years, the FSA has changed radically its prudential supervisory approach, fixing the deficiencies which became clear in the financial crisis. That transformation has had to be implemented while also ensuring strong focus on major current financial stability risks.

“I am convinced that a ‘twin peaks’ model will deliver major benefits. The PRA will have a mandate to focus on prudential issues even when most people assume, as they did before the crisis, that prudential risks are low: and it will be located within the Bank of England, facilitating important synergies between macroeconomic and prudential analysis and insight. The FCA will have a dedicated focus on customer and investor protection challenges in both the retail and wholesale markets.

“Our successful transition to an internal twin peaks model and our advanced preparation for legal separation next spring wouldn’t have been possible without the hard work and commitment of our staff.”

FSA chief executive Hector Sants said: “Despite a challenging environment we have successfully moved to an internal twin peaks model within the FSA from April 2012, maintaining the momentum required to deliver the new regulatory structure from early 2013.

“It is critical that as we progress with regulatory reform, the FSA delivers its own regulatory objectives. We have remained focused on maintaining a high level of supervisory activity as well as taking forward key policy initiatives to ensure the stability of firms in the system.

“In addition we made considerable progress in advancing our new proactive approach to consumer protection.”

Also included in the report were details of the FSA’s continued work to influence the international and European policy agenda, with a focus on Solvency II and Basel III.