Regulatory update: TR16 / 8 – review of packaged bank accounts

Posted: 3rd November 2016

Background

On the 20th of October 2016, the FCA published the findings of its thematic review on packaged bank accounts.

The work was undertaken to assess how firms have implemented the packaged bank account rules introduced in 2013 in the Insurance Conduct of Business Sourcebook (ICOBS). The rules require firms to establish and record customer eligibility to claim on insurance policies and to send customers annual eligibility statements prompting them to review their eligibility.

In 2014 the FCA estimated there were over 9 million customers with packaged bank accounts in the UK. They believe that packaged accounts – due to containing a bundle of insurance and non-insurance benefits – could pose risks for consumers. Specifically, customers can suffer detriment if they rely on products packaged with their current accounts, only to find out later that they are ineligible to use them.

As well as taking a view on the suitability of products and the outcomes provided by packaged accounts, the regulator also sought to establish how firms dealt with complaints relating to packaged accounts.

The review covered a range of firms and involved a range of methods, including; mystery shopping, desk-based review, policies and procedures review, firm visits and complaint file reviews. Assessment of firms’ work took place from October 2014 to April 2016, during which time there was a significant increase in the number of complaints about packaged bank accounts.

Key Points from TR16 / 8

The review identified areas of good practice, particularly the customer-centric approaches generally adopted by firms. However there were some findings from the review samples which, if replicated more widely, would indicate that some firms are at risk of failing to meet regulatory requirements. The regulator asserts that firms should do more to ensure customers are treated fairly, both when taking out a packaged bank account and if they complain.

Main points from the review include:

• Checking eligibility – the mystery shopping exercise suggested that standards have risen since the introduction of new rules in 2013. However; mystery shopping also highlighted that firms are not consistently checking eligibility for every type of insurance in the package. The desk-based review also indicated that firms’ records lacked enough detail to demonstrate that eligibility had been established for all packaged products
• Annual eligibility statements – firms are broadly complying with the rules, but the FCA has pointed out that there is room for improvement in designing annual statements in a way that increases the likelihood of customers’ engagement
• Complaint handling – the sample of packaged bank account complaints that firms received between October and December 2014 showed mixed outcomes. Firms achieved fair outcomes in 88% of cases where customers made a complaint that did not relate to mis-selling. However where customers complained about mis-selling of packaged bank accounts, firms only delivered a fair outcome in 44% of cases. The FCA identified that detriment was likely in 38% of mis-selling complaints, compared to 9% of non mis-selling complaints
• Where firms fully adhered to their complaints policies and procedures for handling mis-sale complaints, the FCA found that firms achieved good outcomes in 99% of cases. Indicating that firms’ approaches supported fair customer outcomes
• It is worth noting for mis-selling complaints; firms only followed policies and procedures in 22% of cases, compared to 72% for non mis-selling complaints

Since the review, the Financial Ombudsman Service has reported falling uphold rates, meaning there is some evidence to suggest standards have improved.

Regulatory Next steps

The FCA will be reviewing an additional sample of mis-selling complaints that firms received between March and May 2016 to test whether the quality of packaged bank account complaint handling has improved. They will not be testing additional non mis-selling complaints.

The FCA hosted a roundtable with firms selling packaged bank accounts to confirm expectations in relation to how they check and record eligibility. Additionally, the FCA will consider how any behavioural research on customer communications may be relevant to the design and use of annual eligibility statements. 

The FCA has provided specific feedback to firms involved in the sampling, and set actions to address any weaknesses identified.

Firms not involved in the sample are encouraged to consider how the findings apply to them and to take action where necessary.

Considerations for firms

Despite some positive findings in this area, there are some points to consider for firms in their bid to be compliant:

• Is your firm clear about the importance of establishing consumers’ eligibility for all insurance or other products packaged with bank accounts?
• How often is the suitability of training for frontline sales staff assessed against the latest legislative and regulatory requirements?
• Are your complaints processes clear, robust and widely known across the business, and are they sufficient?
• Can communications and annual eligibility statements be used in order to keep customers more engaged and updated on the features of their packaged products?
• Are customers given the information they need to consider the suitability of a packaged accounts?
• Are staff incentives linked to achieving good customer outcomes?

As well as this, firms will undoubtedly be keen to discover whether the further samples of mis-selling complaints will show evidence of poor standards, as this may result in further implications for them.