The banking sector was today told that it needs to fundamentally change the way it operates so that consumer requirements are put ahead of all other considerations.
The call for a change in the banking culture was made by several witnesses, including Lord Paul Myners, the Financial Services Secretary to the Treasury, and Lord Adair Turner, chairman of the Financial Services Authority. Lord Myners told the Future of Banking Commission that a radical shift in the way banks conduct their business is essential. Without it, he said, there could be little hope of an improvement in the way consumers view the financial services sector.
Lord Myners acknowledged the argument put forward by the banks at a previous Future of Banking Commission select hearing that they had a duty to accrue profits, but added that ‘they have to look beyond profitability.’ He added: ‘Architecture and capital are not the answer, a change in behaviour is essential.’
Three steps to improve consumer trust
Asked to provide three possible routes to improving consumer trust in the banking sector, Lord Myners identified a return to old style banking, with more decisions being made in-branch rather than over the phone. He said that greater efforts to engage with customers must go hand-in-hand with more competition, in the form of more differentiated products and new providers making their way into the banking sector. He felt that the banking sector should also stop focusing on short term aims, and focus on the longer term to ensure that there is a move away from incentives for sales that are inappropriate and potentially damaging to consumers.
Regulator to ‘police’ banking culture
The concept of changing the culture of UK banking was picked up by the Financial Services Authority (FSA) chairman Lord Turner and chief executive Hector Sants. Mr Sants told the commission that the banking culture needs to change. He said that the FSA recognises that banking executives have a duty to ensure that they deliver the right advice and products in a transparent way, and to ensure that they treat customers fairly. The City regulator, he said, would step in if any banks did not put customers first, to ‘police’ the desired banking culture.
Lord Turner pointed out that the FSA’s powers were not limitless. He said: ‘We simply do not know if we have the tools to change the banking culture. We have pursued the Treating Customers Fairly principle, and can push the banks to change, but they will have to want to change.’
Mr Sants was asked whether he was suspicious of the sales culture that dominates the banking sector. He replied: ‘We are very conscious of the distorting effect on behaviour sales incentives can have and their impact on consumers. Regulators ought to intervene in all areas where sales incentives come into play.’
Which? chief executive Peter Vicary-Smith said: ‘Having heard all the evidence it is clear that the banking culture needs to change. There has been too much emphasis on sales and incentives, when the focus should be firmly on transparency and advice. The banks need to prove that they are acting in consumers’ best interests if they want to be trusted.’
The Future of Banking Commission will publish its report on the British banking industry and consumers in the summer. For more information on the Commission and to see video from the select hearings, visit Which? Campaigns.
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