Salz Review - Wall Street Journal

57
Salz Review
An Independent Review of Barclays’ Business Practices
revenues from PPI, net of claims and provisions for alleged mis-selling, amounted to
an estimated £940 million. 91
6.19 We reviewed the consideration given at various times by Barclays’ senior
management to potential problems from the sale of PPI. In 1996 Barclays moved the
underwriting of PPI business in-house, using insurance subsidiaries set up in Ireland
where the tax rate was lower. On 2 October 1996, the Group Executive Committee
was told that Barclays was “the largest British vendor of PPI”, that “the business was
particularly profitable because of the way it was managed”, and that there were plans
to “offer PPI to different customers and product groups”. A separate paper noted a
risk that: “Regulation (particularly commission disclosure) and scrutiny by such
bodies as the Office of Fair Trading (OFT) are likely in the mid-term. They would
expose Barclays in particular to both profit and reputational risk”.
6.20 Later, in August 2005, the Group Executive Committee again reviewed PPI. In May
2005, it had noted that Barclays had the highest market share of all banks, claims
were running at under 15% of premiums in 2005 but could go above 30% in a
recession, and that the PPI business was “highly profitable” at £400 million per
annum. The Group Executive Committee noted that there were potential concerns
relating to the fairness of single premium policies, policies sold where customers
could not make claims and sales practices that were “not customer friendly” or “high
pressure”. A “doomsday” scenario was identified whereby PPI profits fell to
£100 million per annum by 2008, but the likely scenario taking into account regulatory
concerns was that it remained at £450 million per annum.
6.21 We enquired about the role played by sales incentives. We were told that there were
schemes designed to encourage staff to sell PPI. One example we noted was that in
2009 a sales person would earn two and a half times more commission for selling a
loan with PPI compared to a loan without PPI.
6.22 Like many other banks, Barclays responded to PPI concerns by redesigning its single
premium product. However, it continued to sell single-premium PPI policies until
January 2009, as did several banks. Some stopped earlier – for example HSBC stated
that it “stopped selling PPI in its branches in December 2007 and throughout the
rest of its business in 2008.” 92 In January 2009, when the FSA indicated that single
premium PPI was the most problematic, there was a discussion at the Barclays Brand
and Reputation Committee. Our understanding is that management put forward a
proposal for the single premium offering to be revised to be compliant but the Board
Committee rejected this proposal, preferring that this product be withdrawn.
6.23 In response to the regulatory concerns about PPI and the increasing level of
complaints, the British Bankers’ Association (BBA), representing the major banks
(including Barclays), brought a legal challenge against the FSA and the Financial
Ombudsman Service (FOS), in January 2011, regarding the assessment and redress of
PPI complaints. The courts decided in favour of the FSA and FOS. As a result the
banks had to review past PPI sales even when customers had not complained. The
91 Sources: Barclays Finance and Barclays annual reports.
92 HSBC, What is PPI, HSBC website, ‘Contact us’ section on Payment Protection Insurance;
http://www.hsbc.co.uk/1/2/contact-us/payment-protection-insurance.