The National Audit Office also said the regulator could improve its understanding of compliance costs for firms.

The findings of the, report entitled Financial services mis-selling: regulation and redress, have been welcomed and accepted by FCA officials.

According to the report, the FCA “cannot know whether its activities are reducing the overall scale of financial services mis-selling to consumers”.

Despite multiple interventions by the FCA and new rules and enforcement the FCA “lacks good evidence on whether its actions are reducing overall levels of mis-selling”, the NAO stated.

In 2014, mis-selling accounted for 59% (2.7 million) of customer complaints to financial services firms, according to the report, compared with 25% (0.9 million) in 2010.

PPI alone accounted for 2.3 million complaints in 2014 – 51% of all complaints.

The authors of the NAO review said: “The FCA’s information on complaints to firms does not yet draw together complaints data and information that could show whether its actions are reducing mis-selling – for example it does not identify when the alleged mis-selling that prompted complaints took place.

“Gaps in the FCA’s overview of mis-selling create a risk that its interventions may not be well coordinated, and means that the FCA cannot be sure that it has chosen the most cost-effective way of intervening.”

The NAO accepted that increased fines and redress payments “appear to have substantially reduced financial incentives for firms to mis-sell products”.

Amyas Morse, head of the national audit office, said: “The information my staff could see, such as customer complaints, does not show any clear reduction in the extent of mis-selling. The FCA cannot be confident that its actions are reducing the overall level of mis-selling, and it has further to go to show it is achieving value for money.”

On compliance costs for firms, the NAO said these were difficult to assess accurately because it is hard to determine what firms would do in the absence of regulation and the FCA does not estimate the overall costs of complying with regulations.

Although the FCA estimates benefits and costs in advance, including compliance, it does not routinely undertake post-implementation reviews, the NAO said. But this would be a move which “could improve its understanding”.
The NAO report stated: “Of the 15 firms who responded to our information request, nine told us that their costs of complying with FCA conduct regulations were now ‘much more’ than in 2008. This could reflect the cost of strengthening compliance in response to past misconduct.”

An FCA statement read: “The report recognises that the task of reducing mis-selling of financial services cost-effectively is a difficult one and we welcome the NAO’s conclusion that FCA action including thematic work, changes to inducements, increased fines and redress payments appear to have substantially reduced financial incentives for firms to mis-sell products.

“It is unlikely that mis-selling could ever be eliminated completely. Our aim is to avoid and minimise it as far as possible, create the right incentives and culture in firms and to ensure appropriate redress for consumers and regulatory penalties for poor conduct are put in place when it occurs.

“The report makes clear that the recommendations, which we are accepting, are designed to build on the FCA’s current strategy and increase confidence that it is achieving its intended outcomes for consumers. Protecting consumers from the effects of mis-selling is central to what we do.”

Between April 2011 and November 2015, firms paid out £22.2 billion in redress to more than 12 million customers in compensation to people who had bought PPI, following complaints and regulatory action. The NAO estimates that claims management companies received between £3.8 billion and £5 billion of the compensation paid.

Despite the FCA working to improve complaints handling by introducing new rules and enforcement action including fining Lloyds Banking Group £117 million) there has been “no noticeable fall in the level of complaints about mis-selling upheld by the Ombudsman in the past 5 years”.

The NAO cited figures showing the FOS found in favour of consumers in 62% of cases raised with it since April 2013.

The report found that the Ombudsman “dealt well with an unprecedented increase in its workload” largely because of PPI cases.