LONDON New rules allowing people to cash in their pension pots must not give rise to the next mis-selling scandal after banks have paid out billions of pounds on loan insurance compensation, Britain's financial watchdog said on Wednesday.
People aged 55 years or above can take cash from their pension schemes in a step policymakers hope will spur better retirement provisioning.
Tracey McDermott, acting chief executive of the Financial Conduct Authority (FCA), said the reform creates risks for consumers.
"We haven't actually seen an enormous amount of innovation in new products yet, but obviously we expect that there will be and that it will be good generally for consumers," McDermott told the Public Accounts Committee in Britain's parliament.
"We have been very focused, and indeed the industry is very focused, on the fact that this cannot become another mis-selling scandal," McDermott said.
Replacing Martin Wheatley, who was ousted by the government for being too hardline, McDermott steps down in the summer when Bank of England Deputy Governor Andrew Bailey becomes the FCA's permanent CEO.
Lawmakers said taxpayers must not end up funding the retirement of people who have blown their pension pots.
Britain's public spending watchdog, the National Audit Office (NAO), said this month the FCA could not be confident that its approach to tackling mis-selling was effective or represented value for money.
The NAO said banks have paid over 22 billion pounds ($31 billion) in compensation for mis-sold payment protection insurance or PPI.
Up to five billion pounds has gone to claims management companies (CMCs) who act on behalf of people and in return for a slice of the compensation, a sum lawmakers said could have gone directly to claimants if the government and regulators had acted faster.
Lawmakers asked McDermott how mis-selling could be stopped, and criticised her decision to ditch a review into culture at banks, saying this was a key area for tackling mis-selling.
"Fundamentally, there will always be a risk that there will be mis-selling in any product that involves advice and sales. Mistakes will be made. What we are trying to make sure is that it's at a level that is minimised," McDermott said.
"We have not washed our hands of this issue," she said regarding culture.
Not having a mis-selling scandal on the scale of PPI on the horizon was a measure of success at the FCA, McDermott said.
John Kingman, second permanent secretary at Britain's finance ministry, told lawmakers the FCA was facing misconduct challenges relating to past events.
"We think they are doing a very good job," Kingman said.
($1 = 0.7113 pounds)
(Reporting by Huw Jones; Editing by Elaine Hardcastle)