A report by accountancy giant KPMG has revealed that five of the UK’s largest banking groups have collectively paid some £38.7 million in customer compensation, fines and other costs of regulatory misconduct in the four year period from 2011 to 2014.
KPMG’s ‘Paradox of Forces’ report focussed on Royal Bank of Scotland (RBS) (which includes NatWest), Lloyds Banking Group (which includes Halifax and Bank of Scotland), HSBC, Barclays and Standard Chartered. Together, the banks have lost some 60% of their profits since 2011 as a result of their misconduct.
Products mis-sold by banks and for which compensation has been paid include: packaged bank accounts, mortgages, interest rate hedging products, card protection insurance, equity-based investments and payment protection insurance (PPI). The total PPI compensation bill for the financial services industry as a whole is expected to reach £25 billion, and Lloyds Banking Group alone has set aside £12 million to compensate customers who purchased this insurance. PPI complaint numbers are now falling, but complaints regarding certain other financial products, including current accounts, are on the rise.
According to the report, PPI costs accounted for approximately half of the banks’ 2014 misconduct costs. The total cost of their misconduct in 2014 was £9.9 billion, a reduction of 8% compared to the previous year’s figure of £10.8 billion and a fall of 19% since £12.2 billion was paid out for this in 2012. With regard to the high costs of misconduct, the report reads:
“This will act as a painful reminder that banks must put customer requirements ahead of short-term profits. Clearly cultural change remains an imperative. It took a generation to mess things up; will it take a generation to repair the damage?”
In addition to the mis-selling scandals, some banks have also received enormous fines for various market manipulation scandals. In November 2014, financial regulator the Financial Conduct Authority (FCA) imposed its largest ever fines on five banks, after they were found to have manipulated the foreign exchange markets. UBS was fined £233,814,000, Citibank £225,575,000, JPMorgan Chase £222,166,000, RBS £217 million and HSBC £216,363,000. This makes for a total fine of £1.1 billion for the five institutions combined from the UK regulator, and additional sanctions were levied against some of these institutions by overseas regulators.
The FCA has also handed out a number of fines in recent years for manipulating the LIBOR interest rate, including a £105 million penalty for Rabobank and a £59.5 million fine for Barclays.
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