Precedent set for how ‘priciples-based’ regulation
operates in practice, says Karen Brown.
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The decision in
the PPI judicial review case, R (British Bankers Association) v
The Financial Services Authority [2011], is controversial
because of the precedent it sets for how ‘principles-based’
regulation operates in practice.
The FSA, at least for the time
being, has succeeded in future proofing its approach to the
regulation of conduct by applying high-level principles
retrospectively to the regulated activity of selling PPI.
This, the FSA successfully argued,
was not contradicting or augmenting the FSA’s own conduct rules.
Rather, it was legitimate regulatory gap-filling and it is
precisely how the principles were always intended to operate.
As Mr Justice Ouseley says in his
judgement, the principles are “the overarching framework for
regulation”.
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By GlobalDataThe decision will have worried
businesses involved with PPI, but for motor finance businesses the
concerns will be acute given the proposal to transfer the
regulation of credit from the OFT to the FSA’s successor, the FCA,
favouring a handbook-style approach with rules and principles.
We are still waiting for government
feedback, but there will be no formal announcement about the future
of regulation for credit until later in 2011.
Clearly, businesses should assess
their PPI complaints and determine redress in accordance with
Appendix 3 in the FSA’s Dispute Resolution: Complaints
Sourcebook [DISP App 3]. However, it is worth bearing in mind
that DISP App 3 is expressed to apply to complaints which relate to
the sale of PPI.
According to the FSA Policy
Statement 10/12, complaints about pre-2005 PPI sales do fall
within the scope of their final provisions but the position in
relation to non-complainants is less clear. The FSA indicates that
it cannot expect most firms to consider the position of
non-complainants who were sold PPI before 14 January 2005 and who
may have been affected by recurrent sales failings.
In relation to claims covered by
the new measures, businesses should consider whether they have
professional indemnity insurance (PII) cover. PPI will be treated
as alleged mis-selling. Most PII policies will contain cover for
defence costs and for civil liability, which normally includes
awards, orders or recommendations made by regulatory
authorities.
Policy wording should be checked to
establish which legal entity is covered within a group, and more
generally what consents and notifications are required to preserve
cover. Policies do exist which allow claims to be aggregated and
firms should check for this before dismissing PII cover as a
possible avenue for protection.
Karen Brown is a
professional support lawyer for Addleshaw Goddard
