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News digest 05/08/16: Banks face further £1 billion in PPI costs

05 August 2016 by Henry Ker

Banks face further £1 billion in PPI costs - read more

The latest governance stories in the news

Banks face further £1 billion in PPI costs

Banks are preparing to face more than a billion pounds in extra costs for misselling payment protection insurance (PPI). The new financial burden follows the Financial Conduct Authority’s (FCA) plans to extend the deadline for compensation through to June 2019, a year later than the originally intended.

Since 2011, £24.2 billion has been paid out in compensation, although an estimate by the New City Agenda thinktank has placed the total cost of PPI to the banks at already £37.3 billion. 

The FCA is extending the deadline because it is launching another consultation to look at the banks’ handling of PPI complaints.

The FCA also called for a £42 million advertising campaign to raise awareness about the new deadline, with the cost being covered by the banks.

 

Pension Regulator’s powers should stop employer ‘tricks’

The Pension Regulator’s powers should be widened to prevent ‘tricks’ by employers to ‘exploit’ their pension schemes, according to a report by the Pensions Institute.

As the failure of the BHS pension scheme is investigated, the report calls on the government to grant more power to the regulator to address the 35 ways employers could manipulate pension deficits or surpluses.

At the end of June, the combined deficit of the 6,000 defined benefit schemes being operated by private sector employers was £383 billion. The figure is up from £209 billion a year ago, and around 5,000 of the 6,000 schemes are in deficit, according to estimates by the Pension Protection Fund.

Meanwhile, former chair of the Pension Protection Fund, Lady Barbara Judge, has called for the pensions regulator to be given new powers to block ‘unscrupulous’ deals, or be strengthened by the creation of a separate agency.

Read our analysis of the BHS pensions problems, ‘Protecting Pensions’.

 

Petrofac auditors find ‘no evidence’ of bribery

An independent investigation had found no evidence that Petrofac was involved in bribery and corruption in the oil industry.

Freshfields Bruckhaus Deringer and KPMG carried out the investigation after allegations following leaked documents suggested the Monaco-based company Unaoil had paid bribes on behalf of oil companies to win contracts. Petrofac’s involvement was alleged to concern contracts in Kazakhstan, Kuwait and Iraq.

‘The independent investigation has thoroughly investigated the allegations, based solely on the information available to the company, and recognising the historical nature and wider context beyond Petrofac,’ the Petrofac board said in a statement.

 

Banks ask for clarification on ringfencing

Banks have asked regulators for clarification around ringfencing, as concerns that Britain’s exit from the EU could undermine work they are doing to protect their retail banking operations from risky investment banking activities.

The banks’ worry comes from the ringfencing law allowing deposits, assets and entities from other European Economic Area countries to be included inside a bank’s ringfenced entity. However, if the UK leaves the trading bloc then there is a fear the law may be changed to prevent EEA operations from being included inside the ringfence.

The Treasury and the Prudential Regulation Authority have rejected any delay in the deadline for ringfencing from the end of 2018.

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