Tweet
From today's Financial Times:
FSA fines ‘benefit the banks’
Customers will not benefit from record fines handed out to high street banks in 2011, say consumer groups, who claim the industry has gained from its mistreatment of clients.
HSBC, Barclays, RBS and Bank of Scotland have all received heavy penalties this year for poor practice.
But critics are unhappy that money collected in fines is used to meet the Financial Services Authority’s running costs, rather than help consumers. The fines do not represent a real penalty as providers are already liable to pay these costs, claimed Which?
“The industry’s record fines this year will result in a huge discount on its annual levy to the Financial Services Authority (FSA). It seems outrageous that companies’ poor performance benefits the industry rather than consumers,” said Dominic Lindley, Which? policy adviser. “There must be a better way to spend this money.”
The FSA argued that fines do not help the company charged.
“Individual firms that pay the financial penalty do not get any benefit from any distribution [of the fines into the overall levy],” said a spokesperson, although he admitted that the rest of the industry would be helped.
Robert Ellsworth, regulatory editor at Wolters Kluwer Financial Services, called the structure of fine repayments anomalous from the consumer’s point of view. “The behaviour of the miscreant results in a net benefit for all firms,” he said.
Consumer groups argue that fines, as well as redress, should go towards those who have lost out as the result of a company’s poor practice.
Which? has responded to a Treasury consultation on regulation to demand that fines are used to pay for schemes that will benefit consumers – such as financial education – rather than meeting costs that companies are already required to pay.
Last year’s bumper fines – totalling £89m – helped to reduce the annual member’s fee paid to the FSA by smaller IFAs by 9 per cent to £844. So far firms have paid £62m in fines this year. The regulator has indicated that a further “significant” fine is expected before the end of 2011.
The consumer campaign group has called for an amendment to the financial services bill so that fines meted out to providers can be dramatically increased, arguing that this is the only way to incentivise shareholders to put pressure on senior management to ensure customers are treated fairly.
Under new rules, FSA fines can now be linked to a company’s income, which the watchdog said could mean that some fines treble in size. It added that the payment of redress to mis-treated consumers constituted a greater cost to the firm than the fine itself.
HSBC estimates that the cost of compensation for the mis-sale of care fee investment bonds, via its subsidiary NHFA, will be £29m – three times the fine it has already paid to the FSA.
However, Consumer Focus said customers mistreated by financial companies were not always fully refunded. More work needs to be done to ensure that redress equals the losses incurred, added the group.
From 2013 the FSA is due to be split into the Financial Conduct Authority and the Prudential Regulatory Authority. The government has said it wants both regulators to be more aggressive and intervene earlier in order to protect consumers.
FSA fines ‘benefit the banks’
Customers will not benefit from record fines handed out to high street banks in 2011, say consumer groups, who claim the industry has gained from its mistreatment of clients.
HSBC, Barclays, RBS and Bank of Scotland have all received heavy penalties this year for poor practice.
But critics are unhappy that money collected in fines is used to meet the Financial Services Authority’s running costs, rather than help consumers. The fines do not represent a real penalty as providers are already liable to pay these costs, claimed Which?
“The industry’s record fines this year will result in a huge discount on its annual levy to the Financial Services Authority (FSA). It seems outrageous that companies’ poor performance benefits the industry rather than consumers,” said Dominic Lindley, Which? policy adviser. “There must be a better way to spend this money.”
The FSA argued that fines do not help the company charged.
“Individual firms that pay the financial penalty do not get any benefit from any distribution [of the fines into the overall levy],” said a spokesperson, although he admitted that the rest of the industry would be helped.
Robert Ellsworth, regulatory editor at Wolters Kluwer Financial Services, called the structure of fine repayments anomalous from the consumer’s point of view. “The behaviour of the miscreant results in a net benefit for all firms,” he said.
Consumer groups argue that fines, as well as redress, should go towards those who have lost out as the result of a company’s poor practice.
Which? has responded to a Treasury consultation on regulation to demand that fines are used to pay for schemes that will benefit consumers – such as financial education – rather than meeting costs that companies are already required to pay.
Last year’s bumper fines – totalling £89m – helped to reduce the annual member’s fee paid to the FSA by smaller IFAs by 9 per cent to £844. So far firms have paid £62m in fines this year. The regulator has indicated that a further “significant” fine is expected before the end of 2011.
The consumer campaign group has called for an amendment to the financial services bill so that fines meted out to providers can be dramatically increased, arguing that this is the only way to incentivise shareholders to put pressure on senior management to ensure customers are treated fairly.
Under new rules, FSA fines can now be linked to a company’s income, which the watchdog said could mean that some fines treble in size. It added that the payment of redress to mis-treated consumers constituted a greater cost to the firm than the fine itself.
HSBC estimates that the cost of compensation for the mis-sale of care fee investment bonds, via its subsidiary NHFA, will be £29m – three times the fine it has already paid to the FSA.
However, Consumer Focus said customers mistreated by financial companies were not always fully refunded. More work needs to be done to ensure that redress equals the losses incurred, added the group.
From 2013 the FSA is due to be split into the Financial Conduct Authority and the Prudential Regulatory Authority. The government has said it wants both regulators to be more aggressive and intervene earlier in order to protect consumers.
