Who regulates the regulator?

By Philip Sinel

How did we get to a position where, for more than a decade, banks got away with aggressively selling ‘ineffective and inefficient’ products? The answer lies in utterly inefficient regulation that, ultimately, throws up huge questions about the way in which the UK’s financial system is governed.

 

It’s hard to argue against the notion that the mis-selling of Payment Protection Insurance (PPI) will go down as one of the most notorious banking scandals in recent years, surprising no-one who owns a mobile phone and has, therefore, been hounded by claims companies. What is surprising, however, is not that the scandal happened in the first place, but that it took so long for the regulator to stamp out PPI once and for all.

Even as the total paid out by UK banks reaches £36bn, and the deadline for submitting claims passes, we still dwell under the ever-growing shadow of the banking sector’s bête noire. The sector has braced itself for additional claims, with Lloyds setting aside a whopping £1.8bn extra funds for such an eventuality, a move mirrored by RBS, CYBG and the Co-Op.

The obvious question, then, is how did we get to a position where, for more than a decade, banks got away with aggressively selling ‘ineffective and inefficient’ products? The answer lies in utterly inefficient regulation that, ultimately, throws up huge questions about the way in which the UK’s financial system is governed. To put it another way: who regulates the regulator?

On the face of it, PPI was innocent enough. Sold as insurance to high street customers taking out loans, the idea behind PPI was that if the customers lost their jobs then their insurers would pick up the balance of the outstanding loan. Ultimately, however, PPI was an inherently flawed product, and one that should have set alarm bells ringing for all but the most negligent of regulators.

 
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About the Author

Philip Sinel is a Jersey Advocate and litigation lawyer. He is the Senior Partner at Sinels. His areas of practice include Commercial Litigation, Professional negligence, Fraud, Trust Law, Banking and Financial Services and Private clients.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.