Final guidance on PPI – firms must plot their paths carefully

Posted: 24th October 2016

The FCA’s consultation on the terms of a PPI time bar was always likely to be subject to rigorous scrutiny, given the number of conflicting interests in this space.

Of course, customer outcomes are priority number one for the regulator, and in their bid to bring PPI to an orderly conclusion, ensuring the process is fair and does not result in undue detriment is the primary consideration for the FCA.

The fact that the original consultation (CP 15 / 39) was supplemented by further consultation (CP16 / 20) on the effects of profit share, rebates and commission on redress is testament to the complexity and sensitivity around the end to PPI.

So with the consultation now closed and rules and guidance due in December, what might the implications for firms be of the newest recommendations and other cross-cutting regulatory work?

Consumer awareness campaign

A £42million consumer awareness campaign is planned. The campaign will be split into four six week segments run at intervals across the two years in the lead up to the time bar, and will make consumers aware of their rights and provide details on the deadline to claim.

Already, we have seen trade bodies push back on the 8 week DISP rule during the 6 week FCA advertising window, due to the pressure this will likely place on complaints teams within firms. Firms should not expect much flexibility from the regulator on this point based on past precedent. 

Consequently, firms should keep a close eye on further developments here to ensure they have a clear view of the resource capacity they will need to service the level of complaints that may arise from the periodic consumer engagement.

Operational readiness

Given the number of moving parts in PPI and the many issues yet to be resolved prior to the implementation deadline, it’s important that firms understand the scenarios that might arise and their implications.

How is your firm preparing to embed the final FCA rules? Do you understand the implications of differing complaint volumes on your ability to service them? 

With a three month lead-time for implementing the Plevin related remedies for undisclosed commission and six months for the two year deadline and communication campaign to start, are you operationally ready to deal with these tight timeframes?

With a potential complaints management company (CMC) fee cap on the horizon, as well as the transition of CMC regulation away from the Ministry of Justice to the FCA, there are further variables which could further impact absolute complaint volumes. What capacity planning tools has your firm used to estimate resourcing levels?

The profit share impact

Trade bodies in their response to the FCA’s consultation, have understandably asserted that redress calculation methodologies must be fair and not open to CMC challenge. They have recommended the FCA’s guidance contains example scenarios, and that an industry standard calculator should be developed in order to avoid ambiguity.

How have you identified your historic profit share agreements and have you scenario-tested the implications that this additional factor may have on provisions?

No read across

The FCA have made it clear that they will not be applying the Plevin 50% commission line to other products or services offered by firms. However, this doesn’t mean the regulator isn’t concerned about levels of commission and pricing generally – the regulator’s work on GAP insurance and the recent OP22 made that very clear.  Consequently, firms breathing a sigh of relief over FCA assertions on read across would be well advised to examine their existing commercial arrangements to ensure that both transparency and value for money are factored into the firm’s approach to product design.

Balancing the issues

Firms will clearly have many factors to consider regarding the end of PPI, and ensuring they are strategically and operationally ready for this will be imperative in avoiding further regulatory censure. Firms must plot their paths carefully and gain assurance that they are prepared for what’s to come.