Banks are under pressure from their watchdog to shrink their bonuses to reflect their multi billion-pound bill for the Payment Protection Insurance (PPI) mis-selling scandal.

The Financial Services Authority (FSA), the industry regulator, holds that institutions must bear in mind the costs of refunds as bonus season begins in the City.

Consumers took out PPI to help repay their loans if they fell ill for a long period or became unemployed, but a widespread mis-selling occurred. Some customers took out the policy without realising they did not have to have it, or felt pressured into doing so. The FSA does not intervene in how much is paid out to individuals, but bonuses can fall within its remit if they impact a bank’s finances.

The FSA is working to make sure banks are complying with the recent instruction from the Bank of England’s Financial Policy Committee (FPC) to protect their capital buffers. Bob Diamond, chief executive of Barclays, has already said that the bank is taking its £1bn fine for mis-selling the loan insurance into account when it considers remuneration, but other banks may protest that those responsible have left.

A FSA spokesman said: “We are vigorously engaging with the majorUKbanks to ensure they comply with the FPC’s recommendation to retain capital by reducing distributions such as bonuses.”

Sally Bowyer, Managing Director of Brunel Franklin said: “Everyone accepts that banks provide a valuable service and are entitled to make fair and reasonable charges for services. But people shouldn’t be sold PPI without being furnished with the full facts. PPI mis-selling cases serve as timely reminder of how careful we all need to be when taking out new loans and other credit card agreements.”

Learn more about PPI refunds and find out if you could apply for a refund today! Visit the website www.brunelfranklin.com or call Brunel Franklin, free, on 0800 051 54 51