A parliamentary report has called on the Financial Conduct Authority (FCA) to outline the actions it will take to improve cultures in financial services firms and then report back on their effectiveness in a year's time.
Financial services mis-selling: regulation and redress, a report published on 13 May by the House of Commons Committee of Public Accounts, reached six conclusions about why financial services and products are mis-sold and accompanied these with six recommendations.
The action recommended above came in the wake of the committee's belief the regulator "has not done enough to tackle the cultural problems that lie behind mis-selling by financial services firms".
The report also concluded the FCA should do more to ensure consumers understand the financial products they are buying and the possibility of claiming compensation.
It recommended the FCA set out what more it will do to ensure firms check consumer understanding of the products they purchase and of their rights to claim compensation - particularly for vulnerable consumers - and, again, report back in a year's time.
Other concerns raised by the report were that "claims management companies had taken up to £5bn out of compensation that should have gone to consumers"; the "large backlog of PPI claims" at the Ombudsman - with many consumers having to wait more than two years for a decision; and that "the Treasury does not know how effective the FCA is in reducing mis-selling and there are no good indicators of the current level of mis-selling".
"The FCA has taken action to tackle some of the root causes of mis-selling of financial services, but there remain substantial risks of further mis-selling, as well as cultural problems within firms that make mis-selling more likely," said the report. "The FCA and the Treasury must do more to know how much mis-selling is happening now, and which regulatory activities work best to prevent it."
According to Darrell Evans, CEO of The Consulting Consortium, arguably the most significant conclusion of the report is that "the industry is still grappling to embed a consumer-centric corporate culture that is appropriately aligned to the interests of retail customers".
"This is a further indicator - if one is needed - of the political will to ensure the FCA is doing more to assess and improve culture across financial services," he continued. "This certainly won't be the last we hear from the FCA on this theme."
To date, said Evans, the majority of the regulatory focus on culture has been on remuneration and incentive structures. "More can and needs to be done in the areas of product design and distribution," he added, however.
"The FCA is likely to place emphasis on consideration of whether firms are creating products that meet identified needs of the target market and whether they are of true value.
"Essentially, the key to getting culture right is to reduce, and ultimately eradicate, the conflicts of interest that exist between the firm and the end customer."
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