The PPI mis-selling scandal has dogged the UK financial services industry for the past decade. By 2006 PPI cover been purchased by 15.5 million customers and had a 35 per cent market penetration rate, with £4.4bn of gross written premium in such policies being sold that year. Blacker, director of the Association of Independent Financial Advisers, said that the risk of mis-selling increased as sales rocketed.
“If sales targets are being over-achieved – some of these sales teams were achieving 500 per cent of their sales targets – you need to ask what is happening,” he said in the webinar, supported by IT firm Oracle, on the topic of systemic operational risk. “Those kinds of sales margins should highlight that some sales teams were sailing too close to the wind, but management often does not want to look at these issues because good profits are being made.”
A report into PPI mis-selling by the Financial Services Authority found that, while there was no real evidence of high-pressure sales techniques, PPI was a relatively complex product sold to vulnerable customers with poor-quality advice being given, coupled with a high risk of inappropriate control to monitor sales.
But Blacker contended that the scandal was systemic and that the root cause was “people-related”. He said that there were several factors, key among them “herding” – ie, that financial services firms simply followed each other’ policy wordings, products and sale strategies. The industry also suffered from “group-think”, where the warnings of “naysayers” such as internal audit were ignored. Other problems that led to the scandal were a lack of government regulation or effective oversight.
Furthermore, such industry-wide failings had happened before – pensions mis-selling and endowment mortgages, for example – and were likely to happen again, he argued.
One of the key ways to prevent similar problems in future is to change organisational culture, Blacker said, by looking at how to “really treat customers fairly” and at how internal audit can effectively audit business culture. Another long-lasting benefit might be the recent moves to encourage greater boardroom diversity by searching for more female executives.
The 45-minute live and interactive webinar enabled members to ask questions via email and listen to issues raised by other participants. This new member benefit is a great way for internal auditors to learn and enhance their CPD without leaving their desks. Over 200 members listened in to the first of the series.
If members were unable to join the live webinar, the recording will be made available to members on www.iia.org.uk in the near future.
The next webinar, on risk-based internal auditing, is scheduled for 31 July. For more information, visit www.iia.org.uk