• FSA Library
  • Other publications
    • Miscellaneous documents
      • 2006

Record of meeting on 6 April 2006 between trade associations and the FSA.

Attendees

1. A list of those present is below.

Background

2. The FSA published the findings of its thematic work into PPI in November last year (www.fsa.gov.uk/Pages/Library/Communication/PR/2005/115.shtml). This highlighted a number of concerns over the selling practices and level of compliance of firms, and the high risk these posed to the FSA’s consumer protection objective. On 4 November 2005, the FSA issued a 'Dear CEO' letter explaining the action it wished firms to take.

3. In addition to these concerns, reports by other organisations suggested that there are wider competition issues in the PPI market. The FSA has been liaising closely with the Office of Fair Trading (OFT), which has been considering these issues after receiving a 'super-complaint'. The OFT launched a market study into the PPI market on 3 April 2006.

4. Against this background, the FSA invited 11 relevant trade associations at a meeting on 19 December 2005 to consider what action the industry could take to address both the compliance failings the FSA had identified and the wider competition issues in the PPI market. The purpose of the meeting on 6 April 2006 was to discuss the responses that the FSA had received from the trade associations.

FSA thematic work - update

5. The FSA provided an update on Phase 2 of its thematic review to assess the extent to which PPI sales practices have improved since it published the Phase 1 findings and issued the 'Dear CEO' letter. Preparation for Phase 2 is well underway, with visits planned to 40 firms selling PPI with revolving credit, unsecured personal loans, and mortgages and secured loans in the sub-prime sector. Mystery shopping will not be undertaken. The firm visits will take place during May and early June, and the FSA is planning to publish the findings in late Q3. The published findings will, as appropriate, take into account other relevant work, notably the OFT review, and the outcome of the proposals put forward by the trade associations.

OFT market research - update

6. The OFT provided an update on its market study. The focus of the study will be about making markets work for consumers and will explore wider competition issues. During the course of the study the OFT will be looking at the issues which were highlighted at the time of the super-complaint response, namely:
   
   
   • information difficulties faced by consumers;
   • barriers to entry for stand-alone providers;
   • wide variations in pricing for comparable products; and
   • potentially high profitability.
7. The OFT will also look at how the market is structured (including the benefits of selling through a particular sales channel), how it works (e.g. who sells PPI, the relationship between various players in the supply chain), upstream competition (e.g. whether there is switching between insurers and lenders, where costs lie, commissions) and downstream competition (e.g. what leads consumers to make the choices they do, what information is available to them).
8. The OFT highlighted the close working relationship it has with the FSA on PPI, which will continue throughout the market study. This is in line with the recent commitment both organisations have made to collaborate effectively on a range of issues.

Trade association responses

9. The FSA thanked the trade associations for their contributions. It was encouraged that some of the trade associations had worked together on their proposals, and these were welcomed as a very useful starting point for changes in the PPI market.
10. However, the FSA observed that the responses had focused almost entirely on compliance rather than wider competition issues and, within compliance, there was an emphasis on consumer information rather than the sales process itself. The trade associations considered that their proposals on consumer information would lead to improvements in the sales process. There was also a need to develop clearer and more concrete implementation plans which would extend to embedding improvements in firms. The FSA recognised, though, that these may take longer than the more immediate timescales put forward by the trade associations, in particular where systems changes were involved.
11. The FSA noted that the main areas featuring in responses were:
    
    
    • information to consumers: a lot of activity was proposed on improving information to consumers, including consumer guides, checklists and guidance on use of standard ways of communicating price and key product features prior to the completion of the contract;
    • improvements to eligibility checks during the sales process: proposals to identify good practice where firms sell cover that consumers are eligible to claim on;
    • training and competency (T&C): initiatives to support the provision of T&C; and
    • review of sales where a policy is cancelled, and improved use of management information.
12. The FSA acknowledged that the proposals represented work in progress, given the relatively short timeframe in which they had been drawn up. The detail had yet to be fleshed out and, in doing so, some of the concerns over how the proposals would help towards better sales processes could be addressed. The trade associations can only operate within their powers and within the constraints of competition law, and need the support of members if proposals affecting commercial practices are to be implemented.
13. The FSA and the trade associations were keen to maintain the momentum created by the development of the proposals so far. It was agreed that high-level meetings between the FSA and trade associations would be scheduled on a quarterly basis to review progress. In between, a series of working-level meetings would be arranged to take forward the detail.
14. The possibility of de-linking the sale of the credit product from the insurance sale was also raised. There were mixed views on its likely effectiveness in creating a more competitive market, and concerns were raised about the potential social and economic costs. It was agreed that conclusions could not be drawn at the moment. The FSA will work closely with the OFT, whose research may inform further thinking on such an approach.

Conclusion

15. Further meetings to update on progress with the trade association proposals will be held in July and October 2006.

 

Attendees

FSA

Clive Briault
Dan Waters
Eleanor Linton
Melissa Sauer
Annee Lee
Philip Eaton

OFT

Debbie Samosa
Mark Pratt

Trade associations

Nick Starling, ABI
May Nilsen, ABI
Chris Cummings, AIFA/AMI
Paul Smee, APACS
Ian Mullen, BBA
Stewart Dickey, BBA
Eric Galbraith, BIBA
Adrian Coles, BSA
Graham Haxton-Bernard, CCTA
Peter Williams, CML
Jim Harper, FISA
Martin Hall, FLA
Steve Devine, Protect

Back to top