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Watchdog warns banks not to repeat PPI failings

The regulator overseeing the new financial watchdog warned yesterday that banks were working on new products to replace discredited personal protection insurance (PPI) and vowed to step in to stop customers being ripped off.

Launching the blueprint for the Financial Conduct Authority (FCA), Margaret Cole said that the regulator would be tougher and ban bad products after mis-selling cost customers about £15bn over the past two decades.

Ms Cole said: "Institutions are looking at ways of refinancing their income streams and we need to be very alive to them. There is a risk that other products that aren't suitable will replace PPI, which provided them with a very good income stream.

"They have got to observe the spirit of what the regulator is trying to achieve and make sure that customers are at the heart of their business models. They have got to think about their business models and about the risks of aggressive sales of products."

The banks' legal fight over PPI fell to pieces in April after Lloyds Banking Group broke ranks and agreed to settle with the Financial Services Authority.

Ms Cole said that if the FCA fought similar battles in future the public would have to be prepared for it to fail sometimes. She added that banning products could anger some people who wanted to buy them but that, given the industry's record, a more interventionist approach was needed.

The FSA is being broken up by the Government into the FCA, which will monitor companies behaviour, and a separate arm of the Bank of England, which will be in charge of financial stability.