Pension mis-selling could add to financial sector woe, warns National Audit Office

A wave of mis-selling compensation could continue to hit the UK financial industry, the government's National Audit Office has warned in a new report, raising doubts about the effectiveness of regulatory interventions to prevent this.

The NAO said the financial regulator's increased level of fines and imposition of redress payments appeared to have substantially reduced financial incentives for firms to mis-sell products, but this was far from certain.

Evidence that the activities of the Financial Conduct Authority (FCA) to actually reduce the overall scale of financial services mis-selling to consumers was hard to pin down, the report acknowledged.

In fact, data showed that mis-selling was continuing, with, for example, many thousands of complaints about payment protection insurance, for example, continue to be made against high street banks, data from the financial ombudsman showed earlier in the week.

Changes to pension regulations by Chancellor George Osborne hung a significant new question mark above the industry, the report suggested.

NAO head Amyas Morse said that, while he could not be certain as regulations limited his access to information that the FCA holds on firms, he felt mis-selling was relatively unabated.

"The information my staff could see, such as customer complaints, does not show any clear reduction in the extent of mis-selling," he said on Wednesday.

The report added that gaps in the FCA’s overview of mis-selling, such as not identifying when alleged mis-selling that prompted complaints took place, "create a risk that its interventions may not be well coordinated", meaning the FCA cannot be sure that it has chosen the most cost-effective way of intervening.

Also highlighted was the fact that the FCA has warned that Osborne's pension reforms, which have opened up access to pension pots, raised risks that “vulnerable and unsophisticated” consumers could take financial decisions that are not in their best interests.

While the regulator is already readying itself for possible future "mass mis-selling", the NAO found that consumers and firms felt the FCA’s approach was "based too much on monitoring and implementing detailed disclosure requirements, rather than assessing whether consumers truly understand what they are buying".