Financial Conduct Authority bosses should hang their heads in shame that the Financial Ombudsman Service’s workload and staff numbers have grown so significantly in recent years.
This week Richard Lloyd, who recently completed a review of the Financial Ombudsman Service, quite rightly said the FCA should do more to prevent mass numbers of complaints ending up at the ombudsman.
Addressing the Treasury select committee on Wednesday evening (18 July), Mr Lloyd said the ombudsman had been "completely distorted" by the huge number of payment protection insurance (PPI) complaints it has had to handle in recent years.
Mr Lloyd, former executive director of consumer rights organisation Which, said the FCA should have forced firms to solve their clients' problems.
He said: "The FCA has the power to say to a regulated firm 'you have poorly treated, mis-sold, failed this large number of customers, this is what you need to do to put that right' - a mandatory redress scheme.
"That's, in my view, what should have been done with PPI. In the end the Fos has ended up clearing up this mass mis-selling problem in a way that has completely distorted the organisation for a decade.”
Why didn’t the FCA follow the lead set by the Financial Services Authority when it came to handling the scandal of PPI?
More than 25,000 private investors lost money between 2001 and 2004 after buying shares in split-capital trusts that they had been told were virtually risk-free.
Rather than wipe their hands of figuring out what went wrong with these products and the way they were marketed, back in 2004 the FCA’s predecessor the FSA agreed a no-blame settlement with 20 investment houses in the split-cap sector.
John Tiner, the FSA’s then chief executive who led the negotiations, managed to get the investment houses to agree to pay £194m into a compensation fund for investors.
Rather than drag on for years, the split capital investment trust scandal was dealt with swiftly and investors, rather than moaning about feeling cheated for years, swiftly got their cash back.
It is disgusting that a similar deal couldn’t have been struck by the FCA with the banks to address the payment protection insurance mis-selling scandal.
Adviser Julian Stevens perfectly summed this up in the comments section of FTAdviser: "It's a right royal mess but, when all is said and done, the root cause is regulatory failure.
"The regulator issued best-practice guidelines, failed to police them and the banks indulged in a bonanza of mis-selling which has led to the current crisis at the Fos and further damage to the reputation of the industry."
Rather than hold their hands up and admit they had created rules and failed to make sure they were adhered to, the FCA just pushed the problem over to the Financial Ombudsman Service to deal with.