UK regulator deadlocked on bank compensation decision -sources

LONDON, Oct 1 (Reuters) - Britain's financial regulator lastweek failed to reach a decision on key aspects of thecompensation Britain's banks will potentially have to paycustomers, meaning guidance is unlikely until late this month,industry sources said.

The Financial Conduct Authority's (FCA) board met lastFriday to assess whether there should be a "cut-off" date forwhen consumers mis-sold insurance policies could make a claim,and also the consequence for the industry of a landmark legalruling by the Supreme Court last year.

Each decision could cost banks billions of pounds more incompensation.

The FCA board did not finalise what to do at the boardmeeting, the two industry sources said. One of the sources saidthat means a decision will not come until after the next boardmeeting at the end of October.

The regulator had said it would give guidance on both issuesby the end of the summer.

The FCA declined to comment.

The sources said they did not know why the FCA board wasundecided, nor whether it was due to disagreement on setting adeadline for PPI claims or on the related issue of how it shouldapply the legal ruling from the Supreme Court on commissionpayments.

The FCA is assessing whether to impose a deadline for whencustomers can claim compensation on mis-sold payment protectioninsurance (PPI) policies.

Banks, including Lloyds and Barclays, havealready set aside more than 28 billion pounds ($42 billion) tocompensate people who bought PPI policies, which were supposedto protect borrowers in the event of sickness or unemploymentbut were often sold to people who would have been ineligible toclaim. Banks are keen for a 'time bar' to be placed on claims.

The FCA's board also assessed a decision by Britain'sSupreme Court last November, which said a loans company brokeconsumer protection rules by failing to tell a customer a PPIpolicy included a big commission charge. The case was brought bywidowed college lecturer Susan Plevin, and has become known asthe Plevin case.

If the Plevin ruling is applied to commission charges on PPIand other banking products, banks could face a compensation billof up to 33 billion pounds, research firm Autonomous said inJuly.

Banks have said they could suffer "material" losses if theregulator allows the Plevin ruling to be applied widely.($1 = 0.6611 pounds) (Reporting by Steve Slater; Additional reporting by MattScuffham and Huw Jones; Editing by Ruth Pitchford)