MISSELLING REVIEWS

Miss-Selling, Mis-selling, Misselling, are spelling variations of a word that has entered regulatory language and yet it is not included in the Financial Services Authority's (FSA) Glossary of Terms.

misselling is a word that causes concern to everyone but its exact meaning remains imprecise. It is commonly used where there has been financial detriment to a customer and not where there has been a technical breach of rules.

The FSA is very active to prevent misselling and operates on a "prevention is better than cure" basis, by:

Improving consumers' financial capability
Improving the quality of information given to customers
Focusing on firms to ensure they treat their customers fairly, through monitoring, risk assessment and risk mitigation.

The FSA is very concentrated on its Treating Customers Fairly (TCF) work and is making thematic visits to firms through regional visits. TCF is also embedded into the latest risk visits, known as ARROW 2.

Recent examples of misselling are endowments, personal pensions, precipice bonds and payment protection insurance (PPI). Customer complaints are handled by the Financial Ombudsman Scheme (FOS) or the Financial Services Compensation Scheme (FSCS) for firms who are no longer trading.

The role of FOS and FSCS is to resolve complaints and if upheld they are likely to award financial redress to the customer.

Complaint resolution can be complex but so is the calculation of redress. The FOS approach is to put customers back to the position before they were miss-sold, but in some cases customers may have derived a significant benefit. For example a mortgage could be miss-sold but the customer may have benefited from increased property values.

The FSA reviews many factors when considering redress:

The scale of the problem
The nature of the products and loss involved
Co-ordinating action with cross sectors
Cost effectiveness
The nature of consumers affected
Who was responsible
Wider implications.

In 2008 FOS has experienced a reduction in endowment complaints and an increase in PPI complaints. The latter involves much cross sector activity with the Office of Fair Trading (OFT) and the Competition Commission. One also has to remember that the FSA is not the only regulator in the sector with the OFT controlling consumer credit. In 2006 there were amendment made to the old Consumer Credit Act. You can find those amendments here. As the credit crunch takes effect there are also signs of the first mortgage complaints.