Financial Conduct Authority chief executive designate Martin Wheatley admits the regulator’s failure to levy substantial fines on firms for misselling payment protection insurance has contributed to claims management firms becoming the “new industry cancer”.
Speaking at an Association of British Insurers conference on conduct regulation in London this morning, Wheatley (pictured) said he analysed how the FSA responded to the escalating problem of PPI misselling while it was happening, and said although the FSA spotted the problem early on it met a lot of resistance from the industry in trying to address it.
He said a lot of detailed work and file reviews were carried out before the FSA got to the point where it could start levying fines for PPI misselling.
Wheatley said: “Where we failed is we did not realise the proportionality of the fines we were implementing against the profitability of the product. We did not look through to the business model of the firm. One or two directors have said subsequently to me and those at the FSA at the time, the FSA should have known firms would not respond to £100,000 fines, as they were making billions from this market. It was a huge revenue driver.”
He added PPI accounted for more than 30 per cent of some banks’ total retail profits.
Wheatley said: “The industry is now unpicking that at huge cost, a cost of billions to the industry and a cost to all of us who are bombarded every day with claims management companies saying ‘you too may have been missold’.
“We have created this problem for the industry, that because it was not dealt with earlier, because the industry did not respond to our signals, it has become a huge problem. We have created this new cancer on the industry which is the claims management companies who are driving lots of claims which are not necessarily valid.”