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Record Fine
We have all got used to
some really big numbers recently, as governments have struggled
to bolster the financial system from the effects of the credit
crunch. Losses and rescue packages amounting to billions have
become common headlines in papers and on news bulletins. In
the midst of all of this, it would be easy to discount as
‘trifling’ the sum of £7,000,000 that appeared
in a press release issued by the Financial Services Authority
(FSA), around the same time that the regulator was welcoming
the Government’s newly announced measures to support
the banking system. This £7,000,000 is a very significant
amount of money because it represents a record fine imposed
by the FSA. The fine was levied on Alliance & Leicester
Plc (A&L) for serious failings in its telephone sales
of Payment Protection Insurance (PPI). It is the largest of
an increasing number of fines imposed by the FSA on non-insurers
selling PPI products on the back of mortgages, personal loans,
credit cards and hire purchase agreements.
The inappropriate selling
of PPI has now joined the ranks of high profile regulatory
hotspots such as endowments, pensions and bank charges. Genuine
public concerns have been expressed and amplified by a media
with a voracious appetite for consumer affairs issues. This
in turn is stimulating the growth of a complaints culture
in the U.K. There will be no hiding place for firms that are
shown to have treated their customers unfairly regarding PPI.
They run the risk of reputational damage, regulatory sanctions
as well as potentially large compensation claims. The selling
of PPI is very high profile. Questions have been asked in
Parliament, the Office of Fair Trading has referred the sale
of PPI to the Competition Commission, whilst the FSA is now
taking a much firmer line by taking disciplinary action against
firms and their senior management for regulatory breaches.
Significantly there are many influential commentators pressing
the regulator to take stronger enforcement action.
How
big a concern is PPI to the FSA?
The FSA recognises that
when sold appropriately, PPI provides valuable protection
against changes in personal circumstances. This is especially
true in today’s economic environment of high levels
of consumer debt and increasing costs of living. The problem
is that poor standards in the sale of these policies have
given rise to the risk that consumers are unable to make an
informed decision about the cost and appropriateness of cover,
and are unaware of policy limitations and exclusions. There
is a sense that the FSA has become frustrated that despite
a great deal of information and publicity, and despite increased
regulatory intervention, some firms are making little progress
in improving their sales practices. This frustration is leading
to a readiness to impose more punitive regulatory measures
where standards fall below the required level and consumers
are not being treated fairly.
Margaret Cole, FSA Director
of Enforcement, made this point clearly in relation to Alliance
& Leicester,
The failings at A&L are the most serious we have found.
This is reflected in the record PPI fine. It is very disappointing
that after three years of regulation we are still finding
serious problems in PPI sales. This case shows that we will
continue to step up the action we take when firms do not sell
PPI properly. 
The FSA was particularly concerned
that A&L failed to make it sufficiently clear to its customers
that PPI was optional and had even trained its staff to put
pressure on customers where they queried the inclusion of
PPI in their quotation or challenged advisers’ recommendations.
This resulted in an unacceptable level of non-compliant sales
and exposed A&L’s customers to a high risk of buying
an unsuitable product. The FSA is clear that firms who cannot
sell PPI in a compliant manner should not be selling it at
all, in the words of Margaret Cole,
As we said in our recent update on our PPI work, firms must
ensure their PPI sales processes are up to the required standards.
They must change their behaviour where necessary and if they
are either unwilling or unable to sell this product in a compliant
way, making sure that customers are treated fairly, they should
not be selling it at all.
Other recent PPI related
fines include:
HFC Bank £1,085,000
LV Banking Services £840,000
GE Capital Bank, £610,000
Redcats (Brands) Limited £270,000
Land of Leather £210,000
The solution –
how can e-learning help?
The FSA is clearly determined that
firms need to change their behaviour when selling PPI. The
buck stops with senior management. They are held responsible
for any failure to put in place effective and robust systems
and controls and that their businesses are complying with
regulatory requirements.
One fundamental way of treating your
customers fairly is to ensure that your staff are compliant
with the regulator’s Insurance Conduct of Business Rules.
The FSA introduced additional rules to ICOB in January 2008
with the intention of improving PPI selling practices. These
rules aim to improve oral disclosure and lengthen the cancellation
period on PPI policies
It is essential that salespeople selling PPI know the ICOB
rules and can apply them to their business. It is also vital
that firms can prove this to the regulator. Training is an
obvious solution but firms face a further problem. There is
often a high turnover of staff in sales roles, which creates
an almost constant need to train new people. This can be both
expensive and difficult to organise using classroom teaching.
E-learning can provide the answer to both dilemmas. Being
able to train at your desktop at whatever time suits is the
perfect solution to the challenge of training for high turnover
roles. Firms will know exactly who has completed their training
at any given time, and will be able to show an audit trail
of course completion statistics to the regulator. Let’s
not forget the end-user either, because students will also
benefit from visually interesting, interactive content that
relates regulatory requirements to their day-to-day working
experiences.
Absolutely Training, in partnership with insurance training
specialists Searchlight, offers a series of e-learning courses
that address the key compliance issues involved in selling
and administering PPI products. The courses are particularly
suitable for non-insurance firms selling PPI products as add-ons
to other financial products.
Available courses include:
INS: Sales
INS: Administration
INS: Introduction and Overview
INS: Payment Protection Insurance
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