Top dogs at the Financial Conduct Authority have responded to criticism the regulator should be doing more to prevent mass numbers of complaints from ending up at the Financial Ombudsman Service.
During the question and answer session at the FCA’s annual public meeting this morning (11 September), the City watchdog was asked to respond to criticism contained in Richard Lloyd’s independent review of the Financial Ombudsman Service.
In 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 and the FCA should have forced firms to solve their clients' problems.
Mr Lloyd, former executive director of consumer rights organisation Which, 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."
Charles Randell, chairman of the FCA, said he had been closely in touch with Mr Lloyd and denied the review stated the Financial Ombudsman Service was crumbling under the weight of PPI.
Christopher Woolard, executive director of strategy and competition at the FCA, said the watchdog did have the power to step in and mandate a redress scheme but added this was only suitable if certain conditions were met.
He said: "In many instances the nature of the (PPI) complaint is quite specific to the individual.
"We can use a section 404 scheme, a scheme that deals with compensation of individuals where there is a broad class of individuals affected, and what we do is we bind the ombudsman in those cases.
"They do need a lot of thought before they [section 404 schemes] are used and can only be used where a pattern of behaviour applies in a range of cases."
Back in 2004 the FCA's predecessor, the Financial Services Authority, struck a no-blame settlement with 20 leading firms in the split-cap investment trust sector, which agreed to pay £194m into a compensation fund for investors.