FCA takes aim: London culture breeds mis-selling & misconduct

The UK’s financial market authority  FCA is taking the London market to task for mis-selling vaguely worded and improperly targeted products and falling short on building the corporate culture and resilience needed to serve customers.

“Our view in terms of the treatment of customers, is that firms in the portfolio have not fully embraced our key messages,”  FCA director Matt Brewis (pictured) wrote in an understated opener to a portfolio letter that turned up the heat with each new paragraph.

Those key messages go to the heart of the business:  product suitability, price transparency and the uncertainty of insurance cover.  And Brewis traces the problems to unhealthy corporate cultures, where the  FCA is “disappointed” in progress to date, especially on D&I targets.

Mis-selling sounds like the core of the problem in the  FCA view, despite a raft of new guidelines which firms were to have implemented by the start of 2022. “We continue to see customers buying products which may not be suitable, do not offer fair value and provide insufficient cover at the point of claim.”

Pricing practices may have slipped out of corporate supervision into processes which “do not allow firms and senior managers to effectively oversee pricing practices” and offer limited visibility if customers are being treated fairly.

Incentive structures are a first key ingredient in that problem as schemes “do not consider nor adequately evaluate customer outcomes,” including fee and commission structures that lead to “poor value” for customers.

Coverage, once bought, remains an area of “uncertainty” for customers given Wild West practices in wordings, Brewis lamented. While that “lack of clarity from ambiguous contract wording” leads to “uncertainty” or “confusion” over coverage today, Brewis worries about the next big event down the road.

“We are concerned that the issue may be more widespread and that a wide-reaching incident, for example a cyber-attack, could expose uncertainty of insurance coverage for a large number of customers.”

Similar corporate oversight problems have likewise led to shortfalls in operating and financial resilience, the  FCA warned. The pandemic showed clearly that "many firms had not adequately planned an orderly wind down or taken appropriate steps to conserve capital or considered how to meet future demands on liquidity.” Oversight of third-party assets looks “insufficient.”

Brewis’ recipe:  root out London’s “deep-set” unhealthy corporate cultures.  Brewis sees “a significant risk” that poor underlying cultures may lead to poor customer outcomes and impact the integrity of the market.”

“A firm's culture, governance and remuneration structures should drive good behaviours and produce fair outcomes for customers,” Brewis wrote. “In almost every instance of poor conduct, we have found that deep-set cultural issues have been present.”

For the  FCA, the message may constitute a retort after having heard out industry complaints about its anti-competitive stance and disproportional approach to regulatory action during several months of testimony to the House of Lords.  Brewis vowed that those views would be kept in mind during all pending supervision and correspondence.

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