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Britain's biggest banks are moving towards a decision to mount a legal challenge to the City regulator over rules relating to controversial payment protection insurance (PPI) policies, I have learned.
The country's biggest banks, including Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland (RBS) have been holding secret discussions through the British Bankers' Association (BBA) in recent days.
Further talks may take place on the issue tomorrow and the banks intend to decide whether to seek a judicial review of the Financial Services Authority's (FSA's) revised PPI regime within the next fortnight, I am told.
While there has been no formal decision to proceed, people close to the situation said it was "more likely than not" that the banks would mount a legal challenge to the FSA unless any last-ditch mediation efforts were successful.
A challenge could come as early as next week through a 'pre-action' notice that would be served on the FSA and seek to force all pending PPI complaints to be put on hold.
The banks' objection to the new regime appears to focus on what they regard as the potentially retrospective application of new rules relating to PPI.
They fear the measures could cost them significant sums in compensation in relation to PPI but they are also concerned that a letter sent by the FSA last December would allow the regulator to retrospectively apply new rules to other products and to regulated firms outside the banking sector..
PPI is supposed to give policy-holders peace of mind by covering repayments on financial products if a borrower is unable to make them due to accident, sickness, unemployment or death. More than 90 per cent of PPI policies sold in Britain takes place alongside unsecured or secured personal loans, credit card and mortgages.
However, the practice has become so dogged by controversy that many banks have scaled back the sale of PPI policies. In July, Lloyds said it would stop selling PPI on credit cards, loans and mortgages and other banks have made similar moves.
If the banks elect to press ahead with a decision to pursue a judicial review, it would signify a hardening of their stance towards the City regulator.
Last month, the FSA issued a policy document outlining its new regime. Here's an excerpt from its statement at the time:
"The package will ensure customers are treated more fairly when complaining about PPI and better when buying the product; it includes: new handbook guidance to ensure complaints are handled properly, and redressed fairly where appropriate; an explanation of when and why firms should analyse their past complaints to identify if there are serious flaws in sales practices that may have affected complainants and even non-complainants; and an open letter setting out common sales failings to help firms identify bad practice.
"Firms must implement the measures by 1st December 2010, with the time in between to prepare for implementation such as training staff to a higher level. The FSA will be monitoring firms closely to ensure the new standards are adhered to."
There are some other points worth making about the issue: firstly, that the banks may still decide not to go to court; secondly, if they do, it will be an important test for the City regulator at a time when it is preparing to be broken up; thirdly, that it is a potentially awkward situation for Lloyds and RBS given that the taxpayer is a big shareholder in the two banks; and lastly, that the banks will need to be wary of the public relations challenge they face in addressing an issue where millions of customers have been left nursing grievances.
The BBA, the FSA and the major banks all declined to comment.
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http://europeadmin.citywebwatch.com/...x?file_id=3556
Britain's biggest banks are moving towards a decision to mount a legal challenge to the City regulator over rules relating to controversial payment protection insurance (PPI) policies, I have learned.
The country's biggest banks, including Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland (RBS) have been holding secret discussions through the British Bankers' Association (BBA) in recent days.
Further talks may take place on the issue tomorrow and the banks intend to decide whether to seek a judicial review of the Financial Services Authority's (FSA's) revised PPI regime within the next fortnight, I am told.
While there has been no formal decision to proceed, people close to the situation said it was "more likely than not" that the banks would mount a legal challenge to the FSA unless any last-ditch mediation efforts were successful.
A challenge could come as early as next week through a 'pre-action' notice that would be served on the FSA and seek to force all pending PPI complaints to be put on hold.
The banks' objection to the new regime appears to focus on what they regard as the potentially retrospective application of new rules relating to PPI.
They fear the measures could cost them significant sums in compensation in relation to PPI but they are also concerned that a letter sent by the FSA last December would allow the regulator to retrospectively apply new rules to other products and to regulated firms outside the banking sector..
PPI is supposed to give policy-holders peace of mind by covering repayments on financial products if a borrower is unable to make them due to accident, sickness, unemployment or death. More than 90 per cent of PPI policies sold in Britain takes place alongside unsecured or secured personal loans, credit card and mortgages.
However, the practice has become so dogged by controversy that many banks have scaled back the sale of PPI policies. In July, Lloyds said it would stop selling PPI on credit cards, loans and mortgages and other banks have made similar moves.
If the banks elect to press ahead with a decision to pursue a judicial review, it would signify a hardening of their stance towards the City regulator.
Last month, the FSA issued a policy document outlining its new regime. Here's an excerpt from its statement at the time:
"The package will ensure customers are treated more fairly when complaining about PPI and better when buying the product; it includes: new handbook guidance to ensure complaints are handled properly, and redressed fairly where appropriate; an explanation of when and why firms should analyse their past complaints to identify if there are serious flaws in sales practices that may have affected complainants and even non-complainants; and an open letter setting out common sales failings to help firms identify bad practice.
"Firms must implement the measures by 1st December 2010, with the time in between to prepare for implementation such as training staff to a higher level. The FSA will be monitoring firms closely to ensure the new standards are adhered to."
There are some other points worth making about the issue: firstly, that the banks may still decide not to go to court; secondly, if they do, it will be an important test for the City regulator at a time when it is preparing to be broken up; thirdly, that it is a potentially awkward situation for Lloyds and RBS given that the taxpayer is a big shareholder in the two banks; and lastly, that the banks will need to be wary of the public relations challenge they face in addressing an issue where millions of customers have been left nursing grievances.
The BBA, the FSA and the major banks all declined to comment.
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http://europeadmin.citywebwatch.com/...x?file_id=3556
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