The Consumers' Association has been campaigning fiercely on many fronts to reform the financial services industry so that it works in the consumer and national economic interest.
We have seen major improvements in key sectors but we are not easing up. We are looking at ways of “freeing the prisoners”, that is, the millions of policyholders left in with-profits who are vulnerable to unfair practices.
The biggest challenge is to make sure that what improvements we have seen are permanent. A crucial part of our strategy is to introduce real corporate governance into the industry, particularly into life and pension firms. But what is corporate governance, integrity and accountability? There are many theories and definitions circulating about corporate governance and corporate social responsibility.
However, the CA defines corporate governance as ensuring that there are checks and balances in place to represent the consumer interest – especially policyholders – and prevent corporate abuse.
Integrity means firms not exploiting the lack of corporate governance and accountability means holding them to account if they do. In essence, it means that the consumer interest and business ethics have to be institutionalised at every part of the corporate decision-making process from board level to point of sale to after sale.
We believe one of the key reasons that sectors of the financial services market have failed consumers is that there is little mutuality of interests between consumers and producers – and shareholders. Proprietary companies are a particular problem. Weak competition and regulation mean that directors focus on producer/shareholders' interests at the expense of consumers. Nor do we see any real sign that competition and regulation will work in future.
Higher standards of corporate governance and business ethics are needed. The ABI's raising standards initiative is not enough. I want to stress that the accreditation process run by the PPIAB is impressive. It is just that the stand-ards on which accreditation is based do not go anywhere near enough to institutionalise the consumer interest at board level.
We are developing a charter of rights for consumers and a code of practice on corporate governance for the industry. We will be looking to gather the views of all key stakeholders. On some of the issues, we will be campaigning to have the force of regulation behind them. With others, we want to promote a voluntary code of governance and ethics. We have two objectives – to use the charter and code to expose firms which treat consumers unfairly and reward firms which have consumers' interests at heart.
Some of the issues that the CA thinks a code should cover include representing the consumer interest, giving consumers more say in electing board directors, setting up “shadow” boards to oversee main board decisions and ensuring that the consumer interest is factored into the decision-making process at the highest level.
Directors have to make money for shareholders – we understand that – but the relationship between directors' pay and shareholder value means that, human nature being what it is, directors have a conflict of interest which means that shareholder interest prevails. We are developing meaningful and transparent performance measures which factor in consumer satisfaction. If directors' remuneration depended on how well they performed against these benchmarks, we think attitudes would change.
Responsible practices including restraint on lending practices, honesty and transparency in promotional material and advertising, jargon-free literature and adverts.
Stress-testing products and by this we mean not just financial stress testing but testing products on consumers to see they are suitable and can be sold safely to target groups of consumers.
Developing remuneration strategies which reward sales staff for treating customers fairly not just for selling high volumes of products.
Firms taking qualifications and training seriously, aiming for professionalism and seeing their staff as a resource for helping consumers not just as dispensable selling machines.
We know mistakes can happen and perfection is not possible but we do want firms to take redress seriously.
We will turn those principles into a workable code and establish an accreditation system. We want IFAs to play a part in making this work. We want them to reward firms which agree to abide by high standards of corporate governance. But we also want IFAs and especially networks to live up to those standards, where appropriate. We are rolling out our programme of consultation with industry and want IFAs and their representatives to play a major part in the process.
We hope to launch the code in 2005. I know many in the IFA community and industry have common cause with the CA. If we work together, we can create an industry and profession we can all be proud of.
Mick McAteer is principal policy adviser at the Consumers' Association