As an introduction to this section considering fi nancial services malpractice, this chapter assesses the scale, scope and characteristics of the phenomenon of mis-selling. Financial mis-selling is a widely used term attributed to many meanings including: aggressive, ignorant or incompetent sales tactics; a failure to appropriately advise customers; deliberate strategies to sell financial services that customers do not need; all circumstances where a customer is financially disadvantaged due to reasons they were neither aware of, nor desired (Black and Nobels 1998 ). This examination is undertaken through the content analysis of all the final notices issued and reported by the UK financial regulator (the Financial Services Authority, hereafter the FSA) to financial organizations for mis-selling over the ten-year period, 2002–11. A range of findings are reported. The frequency of mis-selling cases and level of fines associated with financial mis-selling are increasing with time. The type of firm involved in financial
mis-selling is diverse and includes large international banks and insurers and a number of smaller non-financial retailers, yet predominately smaller financial advisory firms. While a substantial proportion of recent research on financial mis-selling has emphasised single causes for this phenomenon such as commission based sales (Inderst and Ottaviani 2012a , 2012b , 2012c ) or product or product line complexity (Carlin 2009 , Carlin and Manso 2010 , Kamenica 2008 ), we observe mis-selling to be a complex phenomenon with multiple causes. These causes include insufficient qualification of advisors, commission bias, failed management systems for collecting customer information and mis-leading advertising. A number of these factors are discussed in some detail in Chapter 34 in relation to the ethics of the selling process. Finally, the types of financial services mis-sold are assessed. We report many financial services have been mis-sold due to their high and often mis-understood risks and also their complexity; in many cases product features are not even fully comprehended by suppliers’ advisors. Other mis-sold financial
services have been poorly explained or sold as an add-on service appended to other financial services sought by the customer. The chapter concludes with discussion of recent UK regulatory developments to alleviate future financial mis-selling.