According to figures released by the Financial Conduct Authority (FCA), more than £27bn has been paid out already to those who were mis-sold PPI.
An estimated 64 million PPI policies were mis-sold in the UK from 1990 to 2010, and poor client conduct has cost banks a staggering £264bn over a 4 year period between 2012 and 2016.
Successive scandals - such as LIBOR and PPI - have badly damaged client trust and confidence in the financial services sector. Following the financial crisis, regulators have sought to restore investor confidence with a tougher regime, a renewed focus on Treating Customers Fairly and new regulations, including MiFID II.
So, with this in mind, will clients fair any better under MiFID II?
Under the new rules, firms are obliged to ensure that any financial instruments that are recommended to clients are suitable and appropriate for their needs. To do this, you must carry out suitability assessments for all recommendations, including buying as well as selling or holding investments.
But, is this enough? If it isn't, what more can you do to show a genuine commitment to clients?
How to avoid financial mis-selling
- Provide information and training - Do advisers (product distributors) currently have the right information, knowledge and training about your products, services and financial instruments? Are they clear about who the target market is and who your end clients are? This is vital and one of the best ways of preventing mis-selling. Are there clear processes and rules if advisers want to recommend products or services to those they are not designed for? Do they know what to do?
- Better product governance - Is there a product approval process already in place? How can you improve communication between product manufacturers and distributors in order to prevent mis-selling? How can you encourage dialogue between them post-sale to improve governance? What measures are in place when distributing other firm's products? How can you ensure that you only recommend products, services and financial instruments endorsed by management?
- Appoint Treating Customers Fairly (TCF) champions - They will be dedicated to championing customer needs, assessing the impact of any change or new products on clients, and looking at the latest developments from the client's perspective, etc
- Revisit all disclosures - Are they compliant with rules? Do you always disclose conflicts of interests, costs, charges, commissions, connections and relationships upfront? Do you make appropriate disclosures on independence or about any restrictions on the type and nature of products, services or instruments? Do you inform customers about the range of financial instruments you recommend and make clear any links to issuers and providers? Do you take time to explain the nature, purpose and frequency of suitability assessments? Do you let customers know that the purpose of these tests is to ensure you act in their best interests? Disclosures are crucial and help customers make comparisons and informed decisions. Don't underestimate them.
- Work with HR to check remuneration and performance targets - Check that there are no incentives, performance targets or other conflicts that may cause you to recommend certain products when others are more suitable, or encourage you to act in ways that are not in the customers' best interests.
- Check impact - In relation to client categorisation rules. What impact will they have? Are your systems and processes fit for purpose? Is there a clear process in place for obtaining and recording consent where clients opt to be categorised differently (e.g. retail instead of professional)? Is your client onboarding software capable of recording suitability assessments and reports, issuing annual reminders, or even categorising clients?
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