Incoming chief executive to review FCA's approach to redress schemes

John Griffith-Jones told the Treasury committee that the FCA's current approach to redress schemes was "still a work in progress", citing the high profile schemes set up to compensate consumers and small businesses for payment protection insurance (PPI) and interest rate hedging product (IRHP) mis-selling as examples. Reviewing the operation of these schemes would be a "crucial" task for new FCA chief executive Andrew Bailey, Griffith-Jones said, in comments reported by Money Marketing.

According to Griffith-Jones, this review will look at "how ... we get a scheme to begin and end to the satisfaction of everybody that we're doing a decent job".

"It's very easy to start these things, but it seems very difficult to finish them," he said.

Dispute resolution expert Ravi Nayer of Pinsent Masons, the law firm behind Out-Law.com, said that any indication that the FCA was considering a review of its approach to redress schemes would be "welcomed" by the financial services industry.

"Redress exercises are increasingly common in many sectors and, despite having long-standing powers, when the FCA will and will not get involved in redress exercises and the circumstances in which it will sanction them is frequently unclear to regulated entities," he said.

"It is also a welcome acknowledgement that justice to and fair treatment of customers is not the sole preserve of the courts where breaches of the FCA Handbook occur on a wider scale. Voluntary redress mechanisms will frequently be a speedier and more equitable way to do the right thing," said Nayer, who is currently researching private collective redress mechanisms at the University of Oxford.

Section 404 of the 2000 Financial Services and Markets Act (FSMA) gives the FCA the power to require authorised firms to establish and operate consumer redress schemes. The FCA will decide the scope of the scheme and timing, while firms will have a certain amount of discretion over the total amount of compensation available. Affected individuals are not obliged to accept redress under the scheme, but those who wish to apply have a simple route through which to settle their complaint. Those unhappy with the settlement offered may, if they are eligible to do so, appeal to the Financial Ombudsman Service (FOS) once they have exhausted the firm's internal appeals process.

Nayer said that the threat of the regulator using its section 404 powers gave firms a "powerful incentive" to set up and operate their own voluntary redress schemes with the FCA's agreement. However, actual use of the power by the FCA remains extremely rare. The best-known example of a section 404 redress schemes is the long-running PPI scheme, through which firms had paid out £22.2 billion to more than 12 million customers as of November 2015.