FSA 'in coma' over mis-selling

The City's chief watchdog was accused of complacency yesterday over the mortgage endowments crisis as it warned that the number of people facing a shortfall was poised to rise sharply.

This contradicted new figures from the insurance industry which suggested the position was improving.

Campaigners also claimed the Financial Services Authority made an important admission yesterday when it said mis-selling of mortgage endowments had been both "widespread" and "significant". Previously the regulator had used phrases such as "pockets of mis-selling".

MPs on the Treasury select committee were questioning the FSA as part of an inquiry into the savings industry and investors' problems.

Millions have been warned that their endowments may not produce the cash they need. Cuts in bonuses and final payouts have exacerbated the situation, leaving many homeowners facing shortfalls on their mortgages. John Tiner, the FSA's chief executive, estimated that the number of warnings was likely to increase from 50% last year to 70% this year.

This contradicted data from the Association of British Insurers which suggested the stock market's recovery had helped reduce the number of people facing a projected shortfall to 1.5 million.

John McFall, the committee's chairman, told Mr Tiner that other bodies which had given evidence had suggested the FSA was not just "asleep on the job" but "comatose". Labour member Angela Eagle compared the problem to rail privatisation, saying: "There is a great big mess... and everybody is denying responsibility."

Mr Tiner said the regulator had been "anything but complacent". It had fined five firms for mortgage endowment related issues and secured £800m of compensation to 500,000 consumers. But he said he found the ABI's figures "incredibly surprising".

The committee ordered the regulator to find out how many homeowners faced a potential shortfall.