Banks and a brave industry boss square up to claims firms

Mark Kleinman
Follow Mark
BRAVERY is not a quality conventionally attributed to the bosses of business lobbying groups but step forward, John Cridland. The CBI director-general’s decision to lob a grenade into the row over payment protection insurance (PPI) mis-selling is in danger of splitting his body’s membership.

Cridland’s argument that there should be a time limit on compensation claims plants his feet firmly in the banking industry’s camp – a potentially discomfiting position for the head of an organisation whose industrial members demand studious objectivity when their interests and those of financiers collide.

More predictably, the British Bankers’ Association has been lobbying regulators for the same outcome, with little success so far. Now, António Horta-Osório, Lloyds Banking Group chief executive, has waded into the row too.

Having set aside more than £5bn for PPI compensation, the bank wrote last month to the Financial Ombudsman Service (FOS) urging for an overhaul of the charging structure for claims: each bogus or duplicate application should be paid for by the claims management companies (CMCs) responsible for submitting them. The case is a logical one. For the CMCs, each submission represents a no-lose gamble.

I understand that the FOS responded to Lloyds’ plea earlier this week, but has remained unpersuaded. People familiar with its reply said it agreed that CMCs required tougher regulation but pointed out that that was a matter for parliament and that it had no legal power to charge ambulance-chasers. That’s a problem for Horta-Osório, but it’s also an issue for the wider economy: every £100m of fraudulent PPI claims could otherwise support £1bn of bank lending.

That leaves CMCs as the only real winners from this debacle. Right now, a more appropriate definition of their name might be Creaming Money (from) Consumers.

Inclement weather has dealt New Yorkers a raw deal recently, so for the roughly 175 financiers at the Arrowwood Hotel in Westchester last week, the Hurricane Sandy-hit backdrop was fitting.

Bankers, lawyers and regulators were there to contend with an equally portentous storm: a bank collapse orchestrated within the new Dodd-Frank Act.

Organised by The Clearing House, a US-based banking association and payments processor owned by commercial lenders, the “war-game” included heavy City representation. Among the participants were John Whittaker, a senior risk executive at Barclays, and Thomas Huertas, a former FSA official now at Ernst & Young.

The participants’ objective, according to people involved, was to act out the safe wind-up of a global systemically-important bank (G-SIB) headquartered in the US and which owned a UK-based broker-dealer.

The results, which are expected to be disclosed this week, provided encouragement to regulators – if not to the bank shareholders and creditors who suffered vast losses: the conclusion was that a G-SIB failure would be possible using recovery and resolution plans overseen by the ominously-named Orderly Liquidation Authority.

Given British taxpayers’ interest in banking reforms, an event to road-test the ringfencing structure being taken through parliament should be held at the earliest opportunity.

In the insurance industry, revenge is a dish best served lukewarm.

Last year, Lloyds Banking Group poached finance director George Culmer from RSA Group. That journey will be reversed next week when RSA lands Martin Scicluna, a former Deloitte partner, as its next chairman.

It means yet another boardroom headache for a state-backed bank. I understand that by dint of its insurance operations, Scicluna will be obliged to step down as a non-executive director and chair of Lloyds’ audit committee. It will not be an easy job to fill.