The most eye-catching part of the National Audit Office’s report into the mis-selling of financial products is the fact that as much as £5bn of the £22.2bn paid out to compensate people with bad payment protection insurance policies has been pocketed by claims companies. If you ever wondered where the money for all those vexatious calls that plague anyone with a mobile phone comes from, you now have your answer.
If the NAO is even half right, it represents a staggering sum that should be raising serious questions, not least because claims companies ought to be unnecessary. If the system of complaining to one’s bank and then moving to the Financial Ombudsman were simple and effective there should be no need for a middleman.
There are measures now in place to put a cap on their fees. But in addressing one scandal – so many people being ripped off by one lot of spivs – another has been created, with another lot of spivs grabbing truckloads of money by inserting themselves into the clean-up.
Regulators, and the banking industry, need to ask themselves whether they are effectively educating consumers about the complaints process and how it should work. Are they making it easy enough? The NAO’s numbers suggest that there is much work to be done.
However, that is far from the only part of its report that should disturb us. Sir Amyas Morse, head of the NAO, makes clear his belief that “The FCA cannot be confident that its actions are reducing the overall level of mis-selling.” He accepts that the watchdog has taken action to reduce the incentives for financial firms to engage in it, by forcing reforms to the way staff are paid and doling out nearly £300m in fines. But he is concerned that there isn’t much in the way of evidence as to whether these measures are working or not and he questions the effectiveness of the regulator’s interventions as a result.
Given the time, effort, energy and money expended on the PPI review, that is extremely worrying.
However, Sir Amyas introduces a caveat: legislative restrictions limit his access to the information that the FCA holds on firms, “making it impossible to draw definitive conclusions on its approach”. So the FCA might be doing a better job than he thinks it is. But it might also be doing a worse one. Thanks to the Financial Services and Markets Act he doesn’t know. And nor do we.
Given the importance of the FCA’s work, and of the industry it covers, that isn’t a very unhappy situation for us to be in.
Sage advice on executive pay? It’s ignored
Pirc, the shareholder voting adviser, is shaking its fists about pay again. The target of its ire this time is Sage, one of those rare British tech success stories of which you’ve probably never heard. It supplies software to other businesses.
As big companies are wont to do – and Sage is a big company with a market value of about £6bn – it pays its executives a lot of money. In Pirc’s view, an excessive amount.
It’s hard to argue with that assessment. Chief executive Stephen Kelly has incentive schemes equivalent to 425 per cent of his base salary, and while his take home pay last year wasn’t considered excessive, it’s easy to see how it could get that way.
But there’s more. The pay committee has the discretion to make awards outside its stated policy to “meet the individual circumstances of recruitment”. In other words, if the board sees someone it wants to grab, the committee can throw money at them.
For these and other reasons (such as its unhappiness with performance criteria). Pirc thinks shareholders should vote down both the advisory remuneration report and, more seriously, the remuneration policy.
Neither of which will happen. The consultant’s points are well made, but Sage’s shares have been on an upward trend (with a degree of volatility) and all would seem relatively rosy. Institutions will therefore be disinclined to make a fuss. Why rock the boat?
The problem with that stance is that where Sage leads, others will follow. The overall level of awards will keep growing, performance criteria will continue to be inappropriate, remuneration committees will carry on throwing around shareholders’ money. And hands will carry on being wrung as bad bosses get it wrong and ride off into the sunset with millions when their companies go pop.
Biggest business scandals in pictures
Biggest business scandals in pictures
1/20 UK to crack down on bank money laundering after reports of £65bn Russian scam, City minister says - Tuesday March 21
The Economic Secretary to the Treasury has vowed that the Government will crack down on money laundering practices, after several of the UK's biggest banks were accused of processing money from a Russian scam, believed to involve up to $80bn (£65bn).
2/20 Former HBOS bankers convicted of bribery and fraud over £245m loan scam - February 2017
Two former HBOS bankers were among six people found guilty of bribery and fraud that cost customers and shareholders hundreds of millions of pounds, the BBC reports. Lynden Scourfield, 54, a manager at HBOS, forced struggling clients to use the services of his friends David Mills, 60, and Michael Bancroft, 73. In return, the two businessmen arranged sex parties, cash and lavish gifts. On Monday, the three were convicted at Southwark Crown Court on accounts including bribery, fraud and money laundering. Mark Dobson, another manager at HBOS, Alison Mills, and John Cartwright were also convicted.
3/20 Former Reckitt Benckiser executive linked to death of 100 people in South Korea jailed for seven years - Friday January 6
A former South Korean executive of UK-based Reckitt Benckiser has been jailed for seven years over the sale of a humidifier disinfectant that killed about 100 people and left hundreds with permanent lung damage. Shin Hyun-woo, head of Reckitt Benkiser’s Oxy subsidiary from 1991 to 2005, was found guilty of accidental homicide and falsely advertising the deadly product as being safe even for children. The consumer product disaster affected many families in South Korea, where children and pregnant women often battle dry winter seasons with humidifiers. Other retailers such as Lotte Mart and Homeplus were also found guilty of selling the deadly product.
4/20 Rogue trader
A French court cut the damages owed by rogue trader Jerome Kerviel from €4.9bn (£4.2bn) to just €1m (£860,000). The court ruled on that Kerviel was “partly responsible” for massive losses suffered in 2008 by his former employer Societe Generale through his reckless trades. Kerviel has consistently maintained that bosses at the French bank knew what he was doing all along.
5/20 Lloyds chief apologises for damage caused by affair allegations - August 2016
Antonio Horta-Osorio, the chief executive of Lloyds Bank, has broken his silence over allegations about his private life admitting he regrets any "damage done to the group's reputation". In a message sent to the bank's 75,000 employees, the banker said that anyone can make mistakes while insisting that staff had to maintain the highest professional standards.
6/20 Christine Lagarde faces court over £340m Bernard Tapie payment - July 2016
The head of the International Monetary Fund (IMF), Christine Lagarde, must stand trial in France over a payment of €403 million (now £340m, then £290m) to tycoon Bernard Tapie, a France's highest appeals court has ruled. The court rejected Ms Lagarde's appeal against a judge's order in December for her to stand trial over allegations of negligence in her handling of the affair. Ms Lagarde could risk a maximum penalty of one year in prison and a fine of €15,000 euros if convicted.
7/20 HSBC senior manager arrested in FX rigging investigation at JFK airport in New York - July 2016
A senior executive at HSBC has been arrested at New York's JFK airport for his alleged involvement in a conspiracy to rig currency benchmarks, according to reports. Mark Johnson, global head of foreign exchange cash trading in London, was reportedly arrested on Tuesday. He will appear before a federal court in Brooklyn on Wednesday charged with conspiracy to commit wire fraud, Bloomberg said.
8/20 Former PwC employees found guilty in 'Luxleaks' tax scandal - June 2016
Two ex- PricewaterhouseCoopers staffers were found guilty in Luxembourg of stealing confidential tax files that helped unleash a global scandal over generous fiscal deals for hundreds of international companies. Antoine Deltour and Raphael Halet face suspended sentences of 12 months and 9 months and were ordered to pay fines of €1,500 (£1,230) and €1,000 (£822) for their role in the so-called LuxLeaks scandal. Despite the minimal sentences, the ruling was described by Deltour’s lawyer as “shocking” and “a terrible anomaly.” The ruling “puts on guard future whistle-blowers,” Deltour told reporters.The LuxLeaks revelations sped beyond Luxembourg, causing European Union regulators to expand a tax-subsidy probe and propose new laws to fight corporate tax dodging, while EU lawmakers created a special committee to probe fiscal deals across the 28-nation bloc.
9/20 Goldman Sachs dealmakers lavished Libyan officials with prostitutes to win contract - June 2016
A former Goldman Sachs dealmaker trying to persuade Gadaffi-era Libya to invest $1 billion with the investment bank procured prostitutes and invited Libyan officials to lavish parties in the hope of winning the business, the High Court heard on Monday June 13.The Libyan Investment Authority sovereign wealth fund is suing Goldman Sachs for inappropriately coercing its naïve staff into giving its sovereign wealth fund cash to the bank to invest in products they did not understand. The products were designed to generate big profits for Goldman, the LIA claims.Goldman denies wrongdoing and says the LIA was treated as an arms-length customer
10/20 Former boss of BHS said his life was threatened - June 2016
Darren Topp, the former boss of BHS, has said former owner Dominic Chappell threatened to kill him when he challenged him over a £1.5 million transfer out of the business. MPs on the Business, Innovation and Skills Committee asked Mr Topp about a £1.5 million transfer Mr Chappell made from BHS to a company called BHS Sweden.
11/20 Sports Direct founder Mike Ashley admits paying workers below the minimum wage - June 2016
Mike Ashley admitted paying Sports Direct employees below the minimum wage at a hearing in front of MPs. The company founder said that workers were paid less than the statutory minimum because of bottlenecks at security in an admission that could result in sanctions from HMRC.
12/20 Mitsubishi admits ‘improper’ fuel tests - April 2016
Mitsubishi has admitted to using false fuel methods dating back to 1991. The scale of the scandal is only just coming to light after it was revealed in April that data was falsified in the testing of four types of cars, including two Nissan cars.
13/20 Panama Papers: Millions of leaked documents expose how world’s rich and powerful hid money - April 2016
Millions of confidential documents have been leaked from one of the world’s most secretive law firms, exposing how the rich and powerful have hidden their money. Dictators and other heads of state have been accused of laundering money, avoiding sanctions and evading tax, according to the unprecedented cache of papers that show the inner workings of the law firm Mossack Fonseca, which is based in Panama.
14/20 Google's tax avoidance
Google reached a deal with the HM Revenue and Customs to pay back £130 million in so-called “back-taxes” that have been due since 2005. George Osborne championed the deal as a “major success”. But European MEPs have since called for the Chancellor to appear in front of the committee on tax rulings to explain the tax deal.
15/20 Turing Pharmaceuticals and Martin Shkreli
Martin Shkreli became known as the “most hated man in the world” after his drug company, Turing, increased the price of a 62-year-old drug that treated HIV patients by 5,000% to $750 a pill. He was charged with illegally taking stock from Retrophin, a biotechnology firm he started in 2011, and using it pay off debts from unrelated business dealings. Shkreli, who maintains he is innocent, and says there is little evidence of fraud because his investors didn't lose money.
16/20 Volkswagen emissions scandal
VW admitted to rigging its US emission tests so that diesel-powered cars would looks like they were emitting less nitrous oxide, which can damage the ozone layer and contribute to respiratory diseases. Around 11 million cars worldwide were affected.
17/20 Quindell, the scandal-ridden insurance firm
Quindell was once a darling of AIM but its share price fell in April 2014 when its accounting practices were attacked in a stinging research note by US short seller Gotham City. In August the group was forced to disclose that the £107 million pre-tax profit it had reported for 2013 was incorrect, and it had in fact suffered a £64million loss.
18/20 Toshiba Accounting Scandal
The boss of Toshiba, the Japanese technology giant, resigned in disgrace in the wake of one of the country’s biggest ever accounting scandals. His exit came two months after the company revealed that it was investigating accounting irregularities. An independent investigatory panel said that Toshiba’s management had inflated its reported profits by up to 152 billion yen (£780m) between 2008 and 2014.
19/20 FIFA Corruption Scandal
Fifa, football's world governing body, has been engulfed by claims of widespread corruption since the summer of 2015, when the US Department of Justice indicted several top executives. It has now claimed the careers of two of the most powerful men in football, Fifa President Sepp Blatter and Uefa President Michel Platini, after they were banned for eight years from all football-related activities by Fifa's ethics committee. A Swiss criminal investigation into the pair is ongoing.
20/20 Libor fraudster
City trader Tom Hayes, 35, has become the first person to be convicted of rigging Libor rates following a trial at London's Southwark Crown Court. Hayes worked as a trader in yen derivatives at UBS before joining the American bank Citigroup in Tokyo. He was fired from Citigroup following an investigation into his trading methods. He returned to the UK in December 2012 and was arrested following a two-and-a-half year criminal investigation by the SFO.
Barratt: building a nice profit on taxpayers’ money
House-builder Barratt is burning rubber with a superduper set of first half results. Revenues up by a fifth, profits by twice that, and just look at those margins.
No wonder the latter are looking good. Barratt managed to increase average selling prices by 10.9 per cent in the period to £254,200. There is a housing shortage in Britain, and prices naturally rise if there are more people wanting to buy than there are houses available.
At least some of the rapid increase in Barratt’s prices can be explained by the fact that it’s selling posher homes.
Still, it’s doing very nicely out of the Government’s help to buy scheme, with about a third of completions receiving this particular type of state support. But should taxpayer’s cash really be pouring into the pockets of shareholders in a private house builder? Isn’t that what we ought to be asking?