Financial Services Mis-selling: Minimising Risk

Just under a year ago I wrote a LinkedIn post asking whether we were through the financial mis-selling storm. The Senior Managers Regime (SMR) had just come into force and the Financial Conduct Authority (FCA) was refocusing their efforts on culture by working with individual firms.

So where are we now as we bed down into 2017? Still the stories of mis-selling are hitting the headlines on a regular and global basis.

In Australia a bank has recently come under fire for its ‘poor compensation culture’. While the firm has agreed to pay back over A$100 million for overcharging customers, the Australian Securities and Investments Commission (ASIC) report that only a tiny faction of this has actually been paid.

ASIC has also announced an imminent investigation into broker-originated home loans. With mortgage brokers incentivised by the size of the loan and interest-only loans, ASIC will look into whether this is consistent with the bank’s legal “responsible lending” requirement.

In the US it was revealed that 5,300 retail banking staff have been dismissed for opening 2 million bogus bank accounts in an attempt to hit sales targets. Then in California two employees filed a class action seeking US$2.6 billion or more for workers who had been fired for not hitting sales quotas having refused to engage in fraud.

Here in the UK, complaints about the mis-selling of Package Bank Accounts (PBA) prompted a review by the FCA. Dubbed ‘the new PPI’, this is the second most complained about product after PPI.

Just a small snapshot of my newsfeed from recent months.

If we are to restore the integrity of the global financial services sector steps need to be taken by firms to minimise the risk of mis-selling.

1. Sales Practice and Culture

The starting point should be a detailed assessment of your sales culture and practice. This includes the sales approach (the process, products, human resources and culture); risk management (the controls in place, the tools being used, the culture of compliance and risk within the organisation); and data analytics (e.g. transactions, performance, feedback, complaints).

From these findings potential misalignment with policies and conduct can be identified, areas of risk addressed, gaps in procedures or policies spotted, and action plans formulated.

Not an easy job, it requires the support of a multi-departmental team and in some cases significant cultural change. However if properly implemented and acting upon, this approach helps to reduce the risk of future mis-selling.

2. Complaints

Assuming that a firm still has a legacy of mis-selling to deal with, a robust strategy for managing complaints and remediation for past misdemeanours and also for addressing ‘business as usual’ complaints is needed.

Poor complaint handling has been a common factor across the financial services sector and continues today. 44,244 complaints to the Financial Ombudsman about Packaged Bank Accounts (PBA) revealed that complaints handling fell well below average.

While a fair outcome was achieved in 88% of non mis-selling complaints, this number plummeted to 44% for mis-selling complaints.  Gathering evidence, failing to address the complaint points, and not giving the benefit of the doubt to the customer were the main causes for concern. There’s more on PBA in this recent blog post.

For senior management, especially in light of SMR, the failure to follow complaint processes and procedures should ring alarm bells. The FCA found that guidance was only adhered to in 22% of cases – yet when it was followed, a fair outcome was achieved in 99% of cases.

3. Accountability

Here in the UK the SMR is beginning to have an impact. While initially many senior managers felt quite complacent about SMR - they thought they understood their responsibilities – many are realising that perhaps that’s not the case.

With the increase in scrutiny and awareness, things are starting to change. We’re seeing senior managers making changes in processes, policies, governance, and culture. Additional support is also being requested as senior managers realise that they need people around with the right skills to help them become more accountable and assess how their actions, or lack thereof, impact on the integrity of their firms.

Finally, a word about culture. Without a doubt cultural transformation has be the key driver to restore trust, minimise risk of mis-selling and for regulatory compliance. Yet, it is still not being embraced across the board, as highlighted by recent events.

While it is of course a significant challenge, the benefits for firms and their customers are not insignificant. There is a business case for cultural change.

You may find this post exploring conduct risk and culture provides some useful further insight: Good Conduct Is Good Business: Do Your People Practice It?

Mark Gossington | Partner
Profile | Follow @markgossin

Read more articles on