A Brief History of the Regulation of Payment Protection Insurance
If anyone thought that it looked as if the recent furor surrounding the mis-selling of Payment protection Insurance (PPI) just exploded as if out of nowhere, this article aims to give you a brief rundown of the year’s long regulatory skirmishes that have gotten us to this point.
Even though there have been criticisms of PPI being made by the ombudsman, charities such as the Citizen’s Advice Bureau and consumer groups, it was not until the main financial regulator, the Financial Services Authority (FSA), began to exert pressure on the industry that the ball started rolling.
The FSA is a quasi-judicial public body that acts as the main regulator of the financial services industry in the UK. As such it would have been a major failing of the FSA if it had not eventually done something about the issue of mis-sold PPI.
Our brief history begins in 2006 when the FSA began to issue fines and official warnings to a number of financial services companies that were engaged in the practice of possibly mis-selling PPI to a wide range of people. This was the first official move by the regulator that acknowledged that there were some problems with PPI.
Two years later in 2008 the FSA published the Insurance Conduct of Business Sourcebook (ICOBS), which was an updated version of its guidelines for the insurance industry. The new guidelines were not solely prompted by PPI, but did contain a number of relevant points, namely:
• That the rules around the regulation of the industry should be simplified to allow for a much more principle based style of regulation
• The setting out of new, higher standards for all non-investment insurance
• New mechanisms and procedures for the protection of consumers from financial products such as PPI
The Competition Commission recommended in 2009 that certain PPI related practices such as the sale of single premium policies should be halted altogether.
Things began to come to a head in 2010 when the FSA released its first ever PPI specific industry guidelines. The guidelines called for the banks to accept full liability for the mis-selling of PPI policies to customers and set out new procedural guidelines regarding the treatment of customers who are complaining about PPI. The FSA also used its powers to re-open 185,000 previously dismissed PPI claims.
The British Banker’s Association mounted a legal challenge to these guidelines that was overturned by the High Court in 2011, leaving the banks facing liability for millions of pounds of compensation claims. Some people say that because the FSA cannot regulate regarding competition price, that it is a rather toothless old dog. I think, however, that all the people winning back compensation will be pretty pleased with the work it has done.