Word on the web: Pre-crisis misconduct still catching up with banks

Payment protection insurance (PPI) still haunts advisers and banks, while worldwide fines for poor conduct reaches £264bn
by Jake Matthews

The most complained about financial product between April and June 2017 was payment protection insurance (PPI), Moneywise’s Helen Knapman writes. 

Citing data from the Financial Ombudsman Service (p.2), Knapman says that 80,234 new complaints were made during this time period; 42,401 of which were for PPI. Of those, 40% were upheld in the consumer’s favour, down from 57% for the same period in 2016. Claims management companies are submitting 80% of the complaints, even though consumers can do this for free. 

The Ombudsman announced the figures ahead of a claims deadline of 29 August 2019, which was declared in March 2017 by the FCA.    

The second most complained about financial product was current accounts (5,229 new complaints, with an uphold rate of 27%), closely followed by car and motorcycle insurance (3,137 new complaints and 29% upheld) and payday loans (3,126 new complaints, with 68% upheld). 

Moneywise article
PPI payouts set to increase  Banks have set aside hundreds of millions of pounds to deal with the claims. Lloyds Bank announced in its half-year review in August 2017 that only half of the 16 million policies it sold had been dealt with, reports Mark Shapland in This is Money. As a result, it has put aside another £700m to meet PPI claims, bringing its total spend on PPI to over £18bn. 

Barclays has also set aside an additional £700m, making its total PPI spend £9.1bn, and HSBC, which has seen a notable increase in complaints since the start of 2017, has put aside an extra $300m (£233m) into its $5.4bn (£4.2bn) PPI provision. 

So far UK lenders have paid out £40bn to resolve 13 million cases. According to Shapland, analysts estimate the figure for unresolved cases could be as high as 15 million. If 80% of these remaining cases are upheld, the bill for banks could be between £47bn and £64bn. 

However, some analysts say the 80% figure is unrealistic, writes Shapland. They argue that high consumer awareness of PPI means those who would have wanted to claim would have done so by now. But FCA statistics say otherwise. PPI payouts for May 2017 came to £260m, the highest figure since June 2016. Awareness is likely to go up too, with the FCA launching a £42m PPI advertising campaign – paid for by banks – later in August. 
This is Money article
Banks fined worldwide It’s not just PPI that’s causing the financial sector to total up massive fines, according to The Guardian’s Jill Treanor. The cost of fines, legal bills and compensating mistreated customers for the five years to 2016 has come to £264bn for 20 of the biggest banks in the world.

This is 5% higher than the previous five-year period (2010-15) and 32% higher than 2008-12, when the CCP Research Foundation, a social enterprise, first started collating data on the conduct costs of banks. 

Treanor quotes Chris Stears, research director of the foundation: “Trust in, and the trustworthiness of, the banks must surely correlate to, and be conditional on, banks’ conduct costs. And persistent level of conduct cost provisioning is worrying.

“It remains to be seen whether or not the provisions will crystallise in 2017 [or later].”

The new PPI complaints that were made between April and June 2017
Treanor’s article details the many factors behind the increasing total of fines that banks are now paying out. The biggest reason is the US residential mortgage bond securitisation mis-selling scandal, which makes up £66bn of the total costs incurred during this half-decade period. The Bank of America, J.P. Morgan and Morgan Stanley all feature at the top of the table for this reason. 

Another major theme is the attempts to rectify past mistakes; for example, fines for rigging foreign exchange markets and interest rates (LIBOR).  

Roger McCormick, the foundation’s managing director, is also quoted: “As has been the case since the first table, we find ourselves wondering when, if ever, the level of conduct costs will start to decrease.” 
Treanor concludes with a question posed by Stears: “The question is at what average level will these costs settle? And, moreover, is that level acceptable to the banks, their shareholders and the public?”

The Guardian article

Seen a blog, news story or discussion online that you think might interest CISI members? Email jake.matthews@wardour.co.uk.
Published: 18 Aug 2017
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