PPI-type scandals could return warns banking regulator
The UK’s most senior retail banking regulator fears that more scandals could hit banks in the next economic downturn, writes Jane Connolly.
In an interview with the Financial Times, Jonathan Davidson, director of supervision for retail and authorisations at the Financial Conduct Authority (FCA), says the cultural issues that led to the PPI mis-selling scandal will take “a generation” to put right.
Lenders became more aggressive in their selling of payment protection insurance in the late 1990s and early 2000s as their margins on basic products fell. Davidson believes that banks have made genuine efforts to improve since being forced to set up PPI compensation schemes in 2011.
Measures have included the end of monetary incentives for staff hitting sales targets, along with the recording of customer meetings. But, on the day of the PPI claim deadline, he tells the Financial Times that another recession could see a return to scandalous practices.
“When things get desperate, banks tend to take more risk,” he says. “Sometimes they take more credit risk, which is why you got the financial crisis. At the same time, they typically take more of what I would call conduct risks, ie they take more risks in their treatment of customers.”
Davidson says that changing culture will take time, adding: “You’ve got all these middle managers who have been told ‘we need a different culture’. But they’ve become very successful. They got promoted year after year for 20 years based on a previous culture.”
The PPI scandal has cost lenders a total of £48.5 billion in compensation and associated expenses. Uncertainty caused by Brexit, global trade wars and fierce mortgage competition has hit many lenders’ profit margins.