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Clydesdale Bank. What a difference a year makes!

This time last year, the press were reporting a National Australia Bank turnaround of the Clydesdale Bank. Even the BBC headlined the story as “Clydesdale Bank completes turnaround ahead of schedule”. At the time, the stories showed that the Glasgow-based lender had reported a pre-tax profit of £127m in the year to September, contrasting with a loss of £183m in the previous year. A success story then!

PPI claims trigger profits warning

Project forward a year to now and the Guardian is running the headline, “UK PPI claims trigger National Australia Bank profits warning” with the sub-headline “NAB expects profits to be 14% below expectations after compensation due to Clydesdale and Yorkshire mis-selling”. There were, of course, warning signs a year ago, as it was then stated that the recovery would not be complete until “conduct-related matters” were concluded – suggesting there was more to come. However, despite that statement and the fact that the bank had to set aside an extra £130m as compensation for mis-sold payment protection insurance [PPI] (bringing the then total to £152m) matters still looked comfortable. It is, therefore, not surprising that those who analyse bank announcements were surprised by the profits warning which came about as a result of increased charges against profits to compensate customers of Clydesdale and Yorkshire banks of £630m. The costs originated from the mis-selling of PPI and Interest Rate Hedging Products [known colloquially as Interest Rate Swaps] which is not surprising, but the jump in the amount is.

How many more banks will follow?

The question to be asked is how many more bank results will show a dramatic negative U-turn? The Financial Conduct Authority [FCA] has kept a close watch on the way banks have managed their customer redress programmes as a result of the mis-selling of financial products and even fined firms who have not treated customers fairly. However, part of the successful management of putting right the things that went wrong is an open and realistic reporting programme for the amount of redress that a firm is likely to have to pay out. It should go without saying that realistic reporting and realistic loss provisioning should go ‘hand in hand’. But sadly, it seems that is not always the case despite outside scrutiny from external independent organisations such as firm’s auditors and the FCA.

The scandal will not go away

The time has surely come when the government requires firms to fully and accurately assess and make provisions for the cost of historic mis-selling. Even those who had hoped that the mis-selling scandal would go away must realise that it won’t and the only way forward to set the slate clean is to sort out the past without delays and move on!

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