Financial services mis-selling: regulation and redress Contents

3Assessing the effectiveness of regulation

17.The costs of the financial regulation and redress system, which include responses to mis-selling, are substantial. The total operating costs of the FCA and the Ombudsman in 2014–15 (which include activities not related to mis-selling) were £523 million and £240 million respectively.43 The FCA told us it employs 3,500 staff.44 It is important that public bodies are sufficiently informed about the effectiveness of the actions that they undertake, and that Parliament can hold those bodies to account for how they use their resources.

Measuring whether regulation is working

18.Preventing, detecting and responding to mis-selling is an important part of the FCA’s activities—there have been over 2 million consumer complaints to firms about mis-selling in each of the last 3 years, mostly due to payment protection insurance. Mis-selling is the most common area for complaints to the Ombudsman, accounting for 70% of the total complaints it received between 2010–11 and 2014–15. But complaints data alone provides an imperfect indicator of current mis-selling levels because complaints may reflect past mis-selling rather than continued problems. The FCA’s information on complaints to firms does not identify when alleged mis-selling took place, which means the FCA has limited information on how much mis-selling is happening now.45 Although the FCA collects information on the effectiveness of some individual regulatory actions, it does not yet draw together information that could show whether its actions are reducing mis-selling.46

19.The FCA does not link the outcomes from its regulatory activities to their associated costs and this means it cannot know whether it has taken the most cost-effective actions.47 This is essential if it is to develop a better view of whether it needs fewer or more staff in future.48 It also has more to do to check that changes in firm behaviour and culture are permanent, rather than short-term responses to regulatory pressure that could fall away if the regulator’s focus moves elsewhere.49

20.The current framework of regulation was set up by the Financial Services Act 2012, which created the FCA to replace the Financial Services Authority as lead conduct regulator from April 2013.50 HM Treasury, which is responsible for the overall regulation and redress framework, could not explain convincingly how it would know if the regulatory system is succeeding or failing. It told us that it can take views of stakeholders on whether the framework is working, but it has not developed any meaningful measures of what success looks like.51

Parliamentary scrutiny

21.In order to examine the effectiveness of the FCA in relation to mis-selling, the NAO needs to gather evidence from the FCA on how it has influenced the actions and behaviours of firms, in line with its regulatory objectives. However, current legislation prevents the FCA from releasing certain confidential information that it holds on firms, other than to named organisations for specific purposes.52 This means, for example, that the NAO did not have access to information it needed on the actions undertaken by firms in response to FCA work on sales incentive schemes, which would include information on bonuses.

22.The NAO has access to commercially confidential information across a wide range of other government activities, and also to highly sensitive defence, security and intelligence information for the purposes of undertaking its work.53 There is therefore no justification for this impediment to holding the FCA to account. Following the financial crisis, the Committee of Public Accounts reported on the need for greater parliamentary accountability for financial regulation.54


45 C&AG’s Report, para 12 and Figure 9

49 C&AG’s Report, para 2.2

54 Committee of Public Accounts, The nationalisation of Northern Rock, Thirty-first Report of Session 2008–09, HC 394, June 2009; Committee of Public Accounts, Maintaining financial stability across the United Kingdom’s banking system, Twelfth Report of Session 2009–10, HC 190, February 2010.




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11 May 2016