FSA chiefs hit back at criticism

LEADING executives of Britain’s financial regulator yesterday rejected criticism of the alleged weakness of its fining policy - while warning that excessive UK consumer debt was causing it concern.

The comments by the Financial Services Authority’s consumer director, Anna Bradley, and director of enforcement, Andrew Proctor, came in the wake of a 750,000 fine on insurance giant Prudential last week. The Pru was found guilty of mis-selling endowment mortgages through its former Scottish Amicable brand in 1999 and 2001.

But critics compared its fine with the 22 million penalty the Office of Fair Trading awarded against retailers Littlewoods and Argos for alleged price-fixing, currently the subject of appeal, on certain toys.

However, Proctor said yesterday that the adverse publicity for financial companies fined for wrongdoing was integral to the punishment.

He said: "That shows a lack of understanding about the dynamics at work. It [the Scottish Amicable fine] is significantly greater than penalties have been in the past."

Proctor said that what came with the fines was of the "utmost, symbolic" importance, adding: "What comes with it is a lot of publicity. The firms are very acutely aware of that publicity."

Proctor went on: "Fining someone 750,000 or 7.5 million would not get a penny back in the pocket of the consumer. You have to look at the whole package."

Other fines handed down by the FSA recently included 750,000 against Royal Bank of Scotland for control failures in monitoring the potential for money-laundering, and 4 million to Credit Suisse First Boston for irregularities to do with its Japanese derivatives operation.

Yesterday’s defence of the FSA’s tactics, at a meeting of top officials of the organisation in the City, came as the regulator confirmed that it was worried about surging consumer debt levels. It is widely believed these have mushroomed due to a mixture of low interest rates, low inflation, a rise in property prices and buoyant stock markets for most of the 1990s.

Bradley said that the debt situation of British consumers had worsened enough for the FSA to consider making it one of its main priorities going forward, with a possible promotion pushing the value of individuals going for "financial health checks" to advisors.

"We are very concerned. In the current climate this could become significantly worse, not just because of the equity market but because of the housing market," Bradley said.

The FSA’s consumer director added: "Consumer debt is one of the big issues that we need to have in our minds. It’s always been an issue, but probably more now than ever before."

She said the FSA would be drumming home the message that debt can be aggravated by conditions that were completely outside borrowers’ powers to control.