RBS 2011 Annual Report Download - page 407

RBS Group 2011 405
Payment Protection Insurance
Having conducted a market study relating to Payment Protection
Insurance (PPI), in February 2007 the OFT referred the PPI market to the
Competition Commission (CC) for an in-depth inquiry. The CC published
its final report in January 2009 and announced its intention to order a
range of remedies, including a prohibition on actively selling PPI at point
of sale of the credit product (and for 7 days thereafter), a ban on single
premium policies and other measures to increase transparency (in order
to improve customers’ ability to search and improve price competition).
Barclays Bank PLC subsequently appealed certain CC findings to the
CAT. In October 2009, the CAT handed down a judgment remitting the
matter back to the CC for review. Following further review, in October
2010, the CC published its final decision on remedies following the
remittal which confirmed the point of sale prohibition. In March 2011, the
CC made a final order setting out its remedies with a commencement
date of 6 April 2011. The key remedies come into force in two parts. A
number came into force in October 2011, and the remainder come into
force in April 2012.
The FSA conducted a broad industry thematic review of PPI sales
practices and in September 2008, the FSA announced that it intended to
escalate its level of regulatory intervention. Substantial numbers of
customer complaints alleging the mis-selling of PPI policies have been
made to banks and to the Financial Ombudsman Service (“FOS”) and
many of these are being upheld by the FOS against the banks.
Following unsuccessful negotiations with the industry, the FSA issued
consultation papers on PPI complaint handling and redress in September
2009 and in March 2010. The FSA published its final policy statement in
August 2010. The new rules imposed significant changes with respect to
the handling of mis-selling PPI complaints. In October 2010, the British
Bankers’ Association (BBA) filed an application for judicial review of the
FSA’s policy statement and of related guidance issued by the FOS. In
April 2011 the High Court issued judgment in favour of the FSA and the
FOS and in May 2011 the BBA announced that it would not appeal that
judgment. The Group then recorded an additional provision of £850
million in respect of PPI. During 2011, the Group reached agreement
with the FSA on a process for implementation of its policy statement and
for the future handling of PPI complaints.
Personal current accounts
On 16 July 2008, the OFT published the results of its market study into
Personal Current Accounts (PCAs) in the United Kingdom. The OFT
found evidence of competition and several positive features in the
personal current account market but believed that the market as a whole
was not working well for consumers and that the ability of the market to
function well had become distorted.
On 7 October 2009, the OFT published a follow-up report summarising
the initiatives agreed between the OFT and personal current account
providers to address the OFT’s concerns about transparency and
switching, following its market study. Personal current account providers
will take a number of steps to improve transparency, including providing
customers with an annual summary of the cost of their account and
making charges prominent on monthly statements. To improve the
switching process, a number of steps are being introduced following work
with Bacs, the payment processor, including measures to reduce the
impact on consumers of any problems with transferring direct debits.
On 22 December 2009, the OFT published a further report in which it
stated that it continued to have significant concerns about the operation
of the PCA market in the United Kingdom, in particular in relation to
unarranged overdrafts, and that it believed that fundamental changes are
required for the market to work in the best interests of bank customers.
The OFT stated that it would discuss these issues intensively with banks,
consumer groups and other organisations, with the aim of reporting on
progress by the end of March 2010. On 16 March 2010, the OFT
announced that it had secured agreement from the banks on four
industry-wide initiatives, namely minimum standards on the operation of
opt-outs from unarranged overdrafts, new working groups on information
sharing with customers, best practice for PCA customers in financial
difficulties and incurring charges, and PCA providers to publish their
policies on dealing with PCA customers in financial difficulties. The OFT
also announced its plan to conduct six-monthly ongoing reviews, fully to
review the market again in 2012 and to undertake a brief analysis on
barriers to entry.
The first six-monthly ongoing review was completed in September 2010.
The OFT noted progress in the areas of switching, transparency and
unarranged overdrafts for the period March to September 2010, as well
as highlighting further changes the OFT expected to see in the market.
On 29 March 2011, the OFT published its update report in relation to
PCA. This noted further progress in improving consumer control over the
use of unarranged overdrafts. In particular, the Lending Standards Board
had led on producing standards and guidance to be included in a revised
Lending Code. The OFT stated it would continue to monitor the market
and would consider the need for, and appropriate timing of, further
update reports in light of other developments, in particular the work of the
UK Government’s Independent Commission on Banking (ICB). The OFT
has indicated its intention to conduct a more comprehensive review of the
market in 2012.
On 26 May 2010, the OFT announced its review of barriers to entry. The
review concerned retail banking for individuals and small and medium
size enterprises (up to £25 million turnover) and looked at products which
require a banking licence to sell mortgages, loan products and, where
appropriate, other products such as insurance or credit cards where
cross-selling may facilitate entry or expansion. The OFT published its
report in November 2010. It advised that it expected its review to be
relevant to the ICB, the FSA, HM Treasury and the Department for
Business, Innovation and Skills and to the devolved governments in the
United Kingdom. The OFT did not indicate whether it would undertake
any further work. The report maintained that barriers to entry remain, in
particular regarding switching, branch networks and brands. At this stage,
it is not possible to estimate the effect of the OFT’s report and
recommendations regarding barriers to entry upon the Group.