Financial Conduct Authority chief executive designate Martin Wheatley says the FCA will be focused on ensuring banks put customers’ interests ahead of profits under the new regulatory structure.
Speaking at a Chartered Institute of Bankers in Scotland event in Glasgow last night, Wheatley (pictured) stressed returns for shareholders should be driven by “good profits, rather than profit at any cost”.
Wheatley said he recognised banks face challenges in searching for profit against a backdrop of compressed margins, competition, and the eurozone crisis pushing up wholesale funding costs.
He also said with the increasing rarity of defined benefit pensions, and with people living longer and insufficient savings, consumers are also finding it difficult financially.
But Wheatley argued it was difficult for consumers to compare products in some cases, for example packaged back accounts which are structured in a way to make it hard to establish whether the product is good value.
He also cited the misselling of payment protection insurance and early repayment charges on mortgages as examples where “profits were more important than what was right for the customer”.
Wheatley said: “In all of this, we accept firms need to be able to generate acceptable returns for shareholders, and have to be financially robust. But this is about ‘good profits’ rather than profit at any cost – either to firms’ own stability or their customers’ best interests.
“The key point is in the FCA we will be looking to firms to construct business models where fair treatment of customers is central. And we will expect those in executive management and on the boards of firms to step up their engagement with this side of the business and take this seriously.”
Wheatley also confirmed the FSA’s review of the sale of interest rate swaps by banks.
The products were sold to customers, including small businesses, to cover the cost of increased payments in the event of interest rate rises. When interests fall the customer has to pay the bank.
He said: “We are taking seriously the concerns small businesses have raised about interest rate products that some banks have sold, and are carrying out work to understand in more detail the types of products that been sold, so that we can assess the scale and severity of any potential issues.
“The areas we are looking at include product design, sales processes and practices, and sales incentives. This will help us to see whether there is a widespread issue and what action we can take, if appropriate. If we find evidence of breaches of our rules or misselling, we will take action.”