Money Fight Club has been through a few rounds with the High Street banks as they have invented new ways to part customers from their money over the years.
The mis-selling of personal pensions, endowment mortgages, payment protection insurance and interest rate swaps have cost customers billions of pounds and damaged the reputation and the finances of the banks.
Now the Banking Standards Review headed up by Sir Richard Lambert, former editor of the Financial Times, has proposed the setting up of an independent body to raise standards and to bring ethics into banking.
It does not go far enough, in our opinion, but we’ve made our submission to the review, making it clear just how tough the job of the body will be if customers are going to feel confident that they can enter a bank branch without fear of losing their trousers.
Even after all the embarrassing and expensive scandals of yesteryear there are still dubious practices going on.
- The selling of savings products with goodish interest rates, to start, but which are replaced by derisory interest rates at the earliest opportunity, is trickery.
- The offering of packaged current accounts to customers with little or no mention of the monthly fees of up to £25 for services they already have, or do not need is outrageous.
- The marketing of personal loans with literature that misleads potential borrowers into believing that they will pay a lot less for the loans than they will, well… words fail us.
So we’ve taken our gloves off – briefly- so we can write to Sir Richard and explain what Might Fighters need to happen.
Below is a brief outline of the consultation document and then our response. We’ll keep you informed.
The consultation at a glance
The review consultation paper raises 19 questions grouped under a number of headings. Respondents can answer all or any of the questions along with any additional comments.
The first heading covers the objective of the review: to “contribute to a measurable and continuous improvement in the conduct and culture of banks” and t support high standards. Question 1 under this heading just asks respondents if they agree with the objective.
The second heading covers the proposed collective approach to raising standards of conduct and the need to address ethical problems. Question 2 asks: Do you agree that there is a case for a collective approach calling for the participation of all banks doing business in the UK?
The role and scope of the proposed new organisation is to act as a champion for good standards across the banking industry. “It will set out what good practice looks like both in terms of conduct and competence, taking always the perspective of the customer.” Question 3 and Question 4 ask respondents if they agree with this role and scope.
The heading of ‘credibility’ looks at appointments to the new organisation, its structure and where its financial support comes from. “Winning the confidence of the wider group of stakeholders in the banking system will be challenging, and take time. This will be determined by the quality and breadth of the board, and the tone it sets in its public statements from the start.” Question 5 under this section asks: Do these proposals go far enough to ensure the body has credibility?
Questions also address membership of the new orgnisation. For the launch years, the proposal is that the new organisation will deal primarily with institutions, rather than with individual bankers, and focus on its standard-setting role. Question 6: What are the pros and cons of aspiring to build individual membership over time?
Under ‘ethics’, Question 7 focuses on the shift in ‘cultural norms’ in the banking industry and dubious trading practices becoming the ‘business standard’. This question asks: Is there a case for a more proactive approach to managing ethical issues, and if so how should it be managed?
The professional standards heading in the consultation document touches on the setting of standards of competence and behaviour. The Financial Conduct Authority and the Prudential Regulatory Authority are working on new guiding principles for the industry. The new organisation will build on these principles. Question 8 and Question 9 ask:
- Do you agree with the proposal to build on best practice as set out in the regulators’ guiding principles?
- What would be the best way of assessing the implementation of a bank’s code of conduct?
Questions 10, 11 and 12 specifically address standards of competence, addressing common weaknesses and looking at training.
- Do you agree with this agenda?
- Would you support the proposed relationship with the existing professional bodies being to provide a ‘canopy’ under which they operate, accrediting or in some way validating the training they offer to bankers?
- Is the proposal for assessing banks’ and building societies’ in-house training sensible and practical?
The new organisation would help to develop a common set of benchmarks against which individual banks could assess their performance against others. Questions 13, 14, 15 and 16 ask:
- Do you think such a benchmarking exercise would be of value?
- Are these the right groups of metrics? Would you propose others?
- Would it make sense for banks to adopt a set of standard questions to add to their existing surveys?
- Is self-reporting appropriate? Might other methods deliver better results?
Question 17 covers discipline and reporting wrongdoing and requiring banks and building societies to supply meaningful commitments to raising standard. It’s one question in two partss: Are there non-bureaucratic alternatives to this approach that might work better? Is there a role for kite-marking?
Under ‘banking as a profession’ the consultation proposes a vocational prospective that encourages responsibility for the banking ‘community’ and not just the bank that an individual works for. Question 18 asks: Do you agree with this proposition?
Finally, the consultation document asks about the new organisation’s possible thought leadership role – “the new organisation could add value by sharing the best practice it encounters and by proposing solutions to future challenges that arise in the industry”. Question 19 asks: Should the new organisation aspire to such a role?
Read the full consultation document
A copy of our submission to the Banking Standards Review
Dear Sir Richard
The Banking Standards Review proposes the setting up of a new independent organisation to raise standards of conduct and competence in banking and to define what those standards of conduct should be.
This body is undoubtedly needed. Over a lifetime as an observer of the financial services sector I have witnessed many scandals, scams and plain bad products being foisted on customers that have cost customers billions of pounds and left the reputation of the banks in tatters.
But how can we believe that the banks want to change their behaviour and to improve competency if they are putting their faith in a body which “in time” it is envisaged will become “a membership organisation for bankers to join”.
From the customer point of view it looks like the banks are just buying time while they continue to invent and sell products and services, and to incentivise bank employees to sell them to increase their profits while costing their customers dear.
This means the answer to question 5 is a resounding no. The proposals do not go far enough to ensure the body has credibility.
Across the banking sector there must be a desire to change and to listen to customers and their representatives if the body is to have credibility and to make a change to the banking industry. The Financial Ombudsman still finds banks dragging their feet when customers complain about mis-selling, mistakes and losses. It is this contempt for the customer that needs to be addressed before the body can attempt to set up a pro-active system for managing ethical issues question 7.
Before the details of membership and who talks to whom within the industry can be negotiated there needs to be a basic ethical framework that the banks agree to be bound by.
Competency is not the biggest issue facing banks. The will to act honestly at all times is paramount. This should result in banks ceasing to invent and sell products that are too complicated for their employees and their customers to understand. These are the type of products that contributed to the banking crisis. They are still being invented and still being sold.
Benchmarking will help the public to rate banks once industry standards have improved but until then such metrics are likely to act to reassure banks that they are good enough when they are not.
For the body to have any credibility it will need to be able to demonstrate its independence. It will need to be willing to report on negative activities of member banks and to call them to account. A starting point would be to persuade banks to properly assess complaints and deal with them honestly rather than forcing hundreds of thousands of customers to take cases to the Financial Ombudsman when the banks know they are in the wrong.
A key measure of success will be when the banks no longer have to apologise for their behaviour because they are not trying to cheat the markets and their customers. When market surveys show that customers trust their banks and the number of complaints to the Ombudsman fall dramatically it will be time to strengthen the regime before the next generation of bankers seek out the loopholes that will allow them to make money by trickery and deceit.
Money Fight Club