U.K. Gives Consumer Protection Groups Powers Over Toxic Financial Products
By Gonzalo Vina – June 26, 2011 7:01 PM ET
Chancellor of the Exchequer George Osborne will give consumer protection bodies the right to flag ‘toxic’ financial products with regulators to prevent banks selling services to consumers that they don’t need.
Consumer groups such as Which? will be given the power to raise complaints with the financial regulator when they see evidence of products that are improperly sold or harm consumers. The Treasury said it expects the change will make the system more nimble and responsive to the needs of consumers.
“We want to go further by giving front line consumer groups the power to hold the regulator to account,” Treasury Minister Mark Hoban will say in a speech in London today, according to remarks released by his office. “Consumer groups should be able to ask the regulator to deal with widespread mis- selling.”
The effort comes after HSBC Holdings Plc (HSBA), Royal Bank of Scotland Group Plc (RBS)and Barclays Plc (BARC) in May set aside about $3.4 billion for customers improperly sold personal-loan insurance. The powers are part of the biggest financial regulatory overhaul since 1997.
Consumer groups already have some powers to raise competition complaints with the Office of Fair Trading. The Financial Conduct Authority, whose powers will be formalized once the Financial Regulation Bill is passed next year, will be forced to investigate similar complaints.
‘Consumers Have Suffered’
“In the past 10 years consumers have suffered from mis- selling and toxic products on a grand scale,” Peter Vicary Smith, the head of Which? said in a statement released by the Treasury. “The impact of these rip-offs has been compounded by a slow response from industry and regulators.”
Barclays, Britain’s second-biggest lender by assets, earmarked 1 billion pounds ($1.6 billion) and HSBC $440 million. Edinburgh-based RBS, which had already made a provision of 100 million pounds, will set aside an additional 850 million pounds.
Lloyds Banking Group Plc (LLOY), the biggest provider of payment protection insurance, a week earlier had broken ranks with competitors and earmarked 3.2 billion pounds to settle claims with clients who bought the insurance, which covers payments on credit cards and mortgages in case of illness or unemployment.
The insurance generated as much as 5.5 billion pounds in annual revenue for U.K. banks, with about 6.5 million policies sold in 2006, according to estimates by the current regulator, the Financial Services Authority.
The Financial Regulation Bill, which will now undergo pre- legislative scrutiny, will abolish the Financial Services Authority and transfer most of its responsibilities to the central bank.
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