FSA compliance will cost PPI insurers £3.2bn

PPI insurers face a £3.2bn bill for complying to new measures issued by the FSA to improve the way they handle complaints.

The colossal sum was revealed in the regulator's 156-page policy statement, entitled 'Assessment and Redress of Payment Protect Insurance Complaints', that outlined how customers should be treated fairly when complaining about PPI and when buying the product.

The policy statement read: "Our final estimates are that the cost to industry of our wider package of measures is £1.1bn to £3.2bn."

Jock Cassidy, director of Middlesex-based Ashley Law, noted the financial burden in improving the system and added: "The reforms will improve the way PPI is dealt with. But the reforms will also mean the cost PPI insurers face will go up as a result of the changes. All PPI providers want to make a profit - the difficulty is if they are expected to fully comply with the new measures, then there will be an increase in costs."

The package of measures, which firms must implement by 1 December, include a handbook guidance to ensure complaints are handled properly and an open letter setting out common sales failings to help firms identify bad practice.

The FSA has also published an explanation of when and why firms should analyse their past complaints to identify any flaws in sales practices that may have affected complainants and even non-complainants.

The regulator said it expects firms to retain records of their root cause assessment of PPI sales problems and failings, their considerations and decisions about what initiative actions are required and the results of the actions taken.

These records will be used by the FSA to monitor their work.

It is also considering extending the time limit consumers have for referring a PPI complaint to the Financial Ombudsman Service following receipt of a firm's final response letter.

Dan Waters, director of conduct risk for FSA, said: "We are confident we can mend a market that has been broken for too long. This remedy is fair to consumers and the industry alike. The onus is now on the industry to ensure it treats all customers fairly. We will be monitoring the implementation of our guidance closely to ensure real change is delivered."

This follow up on the FSA's commitment to reform the market. The regulator has also taken action against 24 firms and individuals for PPI failings with fines totalling approximately £13m.

Kay Blair, vice-chairman of the Financial Services Consumer Panel, said: "Consumers deserve not to have to wait until the new deadline. The industry has been dragging its feet over resolving PPI mis-selling and letting down customers by not handling their complaints fairly."

(Source: Ftadviser.com)