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MM Leader: FSA still needs to get personal with banks

Will 2011 be seen as the year that the FSA finally began to crack down on poor bank advice or will high-street institutions carry on as before, accepting the odd slap on the wrist as a price worth paying?

This week HSBC received the biggestever retail fine from the FSA, £10.5m, in relation to failings of its care fees arm Nursing Homes Fee Agency, which it closed down earlier this year.

This follows a £6.3m fine for RBS-owned Coutts for inappropriate advice on AIG premier bonds, a fine of nearly £6m to Credit Suisse for its private banking arm misselling structured products, £3.5m against Bank of Scotland for mishandling investment complaints and a £7.7m fine against Barclays for misselling two Aviva funds to customers. Building society Norwich & Peterborough was also fined £1.4m for inappropriate Keydata sales.

On each occasion, the offending institution has been ordered to conduct a past business review and make good any client losses.

However, none of these actions has led to any senior management facing personal fines or bans.

It is difficult to see how the standards of bank advice will really change without making the senior management personally accountable for the type of culture they allow to develop below them.

Single suitability

Since Money Marketing’s investigation last month into single-tied arrangements between networks and providers, a number of providers have spoken of their concerns over possible consumer detriment in this area.

The regulator’s new remuneration rules must be effectively enforced for independent and restricted advisers and in particular for single-tied arrangements.
Big distributors may well be feeling the pinch but propping themselves up with unsustainable deals brokered primarily to benefit the distributor rather than consumer is no way to build a future.

In its guidance consultation on distributor-influenced funds, published this week, the FSA questioned what advice tied or restricted advisers who only recommend Difs will provide if the Dif is not a suitable product. This questioning must apply to all restricted arrangements, regardless of product.

If the product or range is not suitable the customer should be sent elsewhere. The FSA may well have a tough job policing these arrangements but it is a job they must get right.

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Comments

There are 7 comments at the moment, we would love to hear your opinion too.

  1. Banks have had far too much latitude to abuse their positions, supported by vast resources to design products – including so called 100″ capital protection” structured products, that principally benefit the product provider far more than the investor., When things go wrong, such as with Lehman’s, banks were very quick in general to pass the risk and loss on to the investor. Tough action by global regulators has been effective – but remains too limited. and more tough action should and no doubt will take place in this regard.

  2. Oh well, with a report out today saying direct and AR IFAs are declining whilst tied adviser numbers are increasing means that the next well intentioned but blinkered regulatory blunder is well underway. Who cares when you have a budget of £500m pa of other peoples’ money? No accountability at the banks’ managment? None in Canary Wharf either, as Hector said, “It’s not my fault!” – yeah, right (not). What do I know though? I’m a money grabbing IFA who takes his liability to the grave and beyond….

  3. I’ve spoken a lot this week on the subject and congratulate money marketing for highlighting this point. If we do not hold boards and directors and senior management responsible for the cultures that they help create nothing within financial services will change.

    This is not a Bank vs IFA battle it is simply a requirement to bring in rules that discipline senior management and board members when they fail to regulate their own firms. HSBC is on track to make a multibillion pound profit this year, so a £10.5 million fine is little more than a parking ticket. Until you threaten senior management and board members with banning orders and unlimited personal fines financial services will never change for the better.

    The responsibilities of a firm’s culture and therefore responsibility for major mis-selling must not be left at the door of a under pressured compliance officer but should be squarely put the door of the senior management and board who reap the rewards of creating high pressure sales cultures.

    PPI insurance mis-selling has cost £9 billion in what I would call fraud but no banning orders or personal fines of any senior directors. That cannot be right!

    The shameful acts of banks and some of those in the IFA community reflect on us all and maybe only by calling for this type of change will we have any chance of turning financial services into an honourable trade. I can but dream!

  4. One wonders what, if anything, the TSC will have to say about the FSA’s unabashed application of such patently double standards. When IFA firms are found to have been lax in their standards of control over what their RI’s are doing, the FSA holds individual managers to account. But when it’s the banks, all they get, in relative terms, is a corporate parking ticket.

    Yet HS told the TSC back in March that the FSA has no prejudicial agenda against IFA’s. His words simply don’t correspond with what the FSA actually does.

  5. Phil, you’re right, just couldn’t help a little bank ‘dig’. It is utterly shameful that this has been going on whilst the FSA squanders the consumers’ money on a few bps of rebates and how they are paid or the font size of the logo on my client facing literature. For the second time this month I have acquired a client who recently purchased life cover through their bank and the other a building society. In both cases we have rebroked for 70% of the original premium. In the case of the BS it was an identical policy with the same insurance company. Over the term of the contract the difference was several thousand pounds. Protecting the consumer?

  6. I would really like to encourage money marketing to run a campaign and to get the FSA to release the figures on how many bank or building society senior managers and directors have received sanctions since 2007.

    Let the figures talk for themselves- I think this is a real scandal and if you put a spotlight on it I’m sure Hector Sants resignation will not be far behind.

  7. * Northern Rock
    * Numerous bank mis-selling scandals
    * So-called “100% principal protected” structured notes
    * Credit Suisse
    * HSBC
    * RBS

    Until real change takes place within banks with regard to their ethics, sales and bonus culture, including self regulation – within the context of a tougher regulatory environment with meaningful corporate and personal accountability, the next scandal will spread across the media before we know it…

    Banking used to be all about trust…which was the basis on which we all handed our hard-earned money across to banks… right?

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