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Sants pledges to get tough over bank incentives

Which? Future of banking commission – reports by Nicole Blackmore

The FSA has pledged to crack down on financial advice given by banks and investigate the effects that sales incentives have on advice given
to consumers.

Speaking at the Which? Future of Banking Commission last week, outgoing FSA chief executive Hector Sants said the deposit-taking function
of banks is guaranteed through the Financial Services Compensation Scheme but there needs to be greater trust in financial advice.

He said: “Within the banks, we must distinguish between the two elements of service. There is the deposit-taking service which can be guaranteed, so that is not trust in the bank per se, it is trust in the system in its entirety.

“But the other component is the financial advice the banks offer and we can certainly improve that significantly and that is the intention, the behaviours of people supplying that advice through a mixture of more rigorous proactive regulation and more effective deterrence and enforcement.”

But Sants insisted that consumers must be more realistic about the outcome of advice, with greater understanding that it will not always be correct.

He said: “We do have to get consumers to recognise the inherent limitations of the advice service, which is that it will axiomatically not always
be right. We need to tackle it from both sides and acknowledge that we are not going to get to the perfect solution and people who continue to aspire to the perfect solution will continue to be disappointed.”

Which? chief executive Peter Vicary-Smith asked Sants whe ther there could be a read-across from the RDR into incentivisation structures
of front-line sales staff at banks, such as in-branch disclosure of incentives.

Sants said: “We are very conscious of the distorting effect that incentives can have on behaviours and on service and advice.

“Wherever there is the potential for incentives to produce distortion, if it is within our regulatory remit, we would look at it. However, we also have to bear in mind our resources and the ability of the industry to absorb change but I think, ultimately, in term of the wider question, yes, the
regulator ought to be interested in all areas where incentives are having a potentially distorting effect on advice.”

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