MPs warn that not enough is being done to protect consumers from mis-selling, and that the recently introduced pensions freedoms could spark a whole new scandal

MPs are warning that the next financial scandal could be on the horizon, as too little is being done to address the cultural aspects that lead to wrongdoings, such as payment protection insurance (PPI) mis-selling, while a landmark pensions change has created new opportunities for such behaviours to flourish.

A report released today by the Public Accounts Committee (PAC) calls on the Financial Conduct Authority (FCA) and the Treasury to bolster their attempts to determine how much mis-selling may be going on in the financial services sector and establish which regulatory activities are working best to stop mis-selling.

The MPs also warned that the pension freedoms, which allow those over 55 to dip into their pension pot without first purchasing an annuity and came into force last year, could spark another mis-selling scandal.

In particular, the report criticised the overuse of targets, pointing out that rewards systems that prioritised the number of sales staff made did little to foster customer-focused policies.

"It is vital the government and regulators take fresh action now to better protect taxpayers’ interests, both in reducing the potential for mis-selling and, when it does occur, to ensure those affected get their due compensation," said Meg Hillier, chair of the PAC.

The MPs also slammed the FCA for scrapping its review of the banking culture at the end of last year. The PAC urged the watchdog to come forward with an outline of the actions it now intended to take to improve culture in financial services firms.

The report comes at a time when the financial services sector is still feeling bruised over the PPI mis-selling saga, which saw more than 12m customers being mis-sold the now infamous product and institutions having to fork out over £22bn in compensation since April 2011.

"The widespread mis-selling of PPI is a vivid demonstration of the risks facing consumers in the financial services market," remarked Hillier. "The fallout is still with us. Many people have waited years for a decision on compensation and, because of the way they have pursued their claims, even then they may not receive the full amount. Serious risks of further mis-selling remain."

The Treasury and the FCA are yet to respond to City PM's request for comment.

Commenting on the PPI angle of the report, Simon Evans, chief executive of the Alliance of Claims Companies, said: "The real scandal here is the scale of the mis-selling, and the continued resistance of banks and others to properly compensate consumers in a timely fashion. Claims management companies have an important role to play in bringing financial institutions toaccount for their malpractice, and will continue to do so."