Banks given customer trust ultimatumby
The banking sector has been warned that to regain customer trust, it needs to fundamentally change the way in which it operates by putting consumer needs first.
The call for change was made by Lord Paul Myners, Financial Services Secretary to the Treasury, and Lord Adair Turner, chairman of the Financial Services Authority (FSA) at the Future of Banking Commission, which took place at the end of last week.
According to the Times newspaper, Lord Myners said that the UK’s banks should not be allowed to make bumper profits after "gouging" their customers with things like high overdraught charges, adding that the sector had "enjoyed more public subsidy than any other industry in our economy".
While Myners acknowledged the banks' argument that they had a duty to make profits for their shareholders, he added that they must also look beyond such aims. "Architecture and capital are not the answer – a change in behaviour is essential," Myners said.
In order to improve trust in the sector, he recommended a return to old-style banking, where more decisions were made at branch level rather than over the telephone. Greater efforts to engage customers should also go hand-in-hand with more competition in the form of new players and more differentiated products.
Myners added that the industry should likewise focus on long- rather than short-term goals to ensure that it shifted from an incentives-for-sales culture, which could result in mis-selling activity.
According to Which?, the FSA’s chief executive Hector Sants echoed his view, saying that banking executives had a duty to ensure that they treated consumers fairly by providing them with both the right advice and the right products in a transparent fashion. If they failed to do so, the regulator was quite prepared to step in and police the situation.
But Lord Turner said that the FSA’s powers were not limitless and the watchdog was unsure whether it had adequate tools in place to change banking culture. "We have pursued the ‘Treating Customers Fairly’ principle and can push the banks to change, but they have to want to change," he said.