Out-Law News 2 min. read
02 Sep 2014, 4:18 pm
Financial regulation expert Michael Ruck of Pinsent Masons, the law firm behind Out-Law.com, said that last week's announcement that 2.5 million complaints in relation to payment protection insurance (PPI) would be reopened would "set a paradigm" for future redress schemes. He said that the regulator was increasingly "putting the customer first" and taking supervisory action and ordering redress without taking enforcement action against firms.
The FCA has ordered banks, credit card providers and personal loan companies to reopen complaints first assessed in 2012 and 2013 as it believes that some customers may have been unfairly rejected or did not receive enough compensation. Ruck said that this was a "highly intrusive model", the alternative to which could have been enforcement action if the FCA had found that protective procedures were inappropriate or that systems and controls allowed complaints to have been closed when they were not.
"The FCA's new intrusive approach to redress schemes is part of its strategy of putting the cost burden on firms to rectify their own past mistakes, in line with the imposition of skilled person reviews at the firm's expense," he said.
He said that at least one bank had made new hires onto a team that it had set up to undertake a PPI redress scheme, reporting to its legal and compliance department, while others were using law firm secondees and contracted help to support the legal and compliance team.
"The best banks are learning from these relatively early schemes and applying it to how they will address such issues in future. Not all have got a standing redress/remediation core team yet, but we expect that to change for the major banks," he said.
"Making firms pay this way has the merit of avoiding outcomes, as in the Keydata scandal where many firms forced to pay compensation argued they were unfairly paying for mistakes not of their making," he said.
The same overarching requirement that financial promotions be "fair, clear and not misleading" applies equally to those posted on social media, such as Facebook or Twitter, as those advertised through more traditional media channels. In its recent guidance on social media and financial promotions, the FCA acknowledged that restrictions on the length of messages that could be posted on platforms such as Twitter presented a challenge to businesses to ensure that they met all regulatory requirements when promoting via those channels.
The new guidance said that financial services companies could meet their disclosure requirements through the use of images, such as infographics, inserted alongside social media postings provided that the information contained in those images was itself compliant. They must also ensure that promotions are sufficiently targeted so as not to "lead consumers to buy the wrong product", bearing in mind the ease with which promotions posted on Facebook or Twitter could be 'shared' or 're-tweeted', it said.
Ruck said that firms would need to put careful consideration into the design of any new products involving the use of technology, their sale and promotion and final outcomes for consumers. In addition, the FCA's move towards redress-based methods of rectifying mistakes meant that extensive electronic record-keeping was needed, he said.
"These are all things which firms should already be doing but the impact of failing to meet the regulatory requirements in these areas is likely to be much larger in terms of resource and financial impact," he said.
"Some firms are extremely good at keeping electronic data on all aspects of their business and some are poor at it. Unless a firm can evidence steps it has taken, and financial promotions that it has done, it will be in a very difficult position if the FCA asks for evidence," he said.
A version of this article was first published on Thomson Reuters Compliance Complete on 1 September.