There is nothing like an election to concentrate the mind on what our esteemed politicians believe we need to be thinking about for the future. Whether it is the economy or the NHS, defence or education, the smart money seems to be on a coalition again, it is just the permutations of who will court whom to form a government that is in the balance.
As ever, the financial services industry will have a vested interest in the outcome. With the FTSE around all time highs and interest rates at the same historically low level as they were five years ago, you could be forgiven for believing the garden is rosy if you have a mortgage and a portfolio of investments. However, there is a rather persistent wound that is still sore and needs some careful treatment: financial services’ reputation.
If we wish to avoid making the same mistakes all over again and to improve the reputation of the industry, the financial services machine has an opportunity, with the significant and continuing amount of regulatory challenge, to get it right. Over the course of the next few years, for example, we will see Mifid II introduced, the consumer credit regime embedded and the landscape for the provision of credit radically overhauled. We will also have seen the impact the pension reforms will have had on the post-55 year old population.
What all these changes will bring is a real focus on customer protection, which is at the heart of global governments’ and regulators’ objectives, as the last financial crisis dims in the memory.
In the UK, the FCA is driving its consumer protection agenda through its focus on conduct risk, a term that is creating some debate among firms as they translate what that means for their own business. We have seen some very impressive work undertaken by some firms in creating their own approach to conduct risk as they grapple with potential conflicts and risk, and understand the root cause of any failings.
Allied to the development of a conduct risk strategy is how a firm considers the impact of what it provides and how it goes about its business with its customers. Assessing the degree to which customers may be “vulnerable” and what the firm needs to do to improve its understanding of the causes of vulnerability is also important. The FCA issued Occasional Paper No. 8 earlier this year and we have seen some firms use that paper as the catalyst to review communications with customers from their website, through to training on removing excessive jargon from conversations and written communications including suitability letters.
Undertaking such an exercise is not to be taken lightly. Where firms can come unstuck is over promising and under delivering. Bitesize chunks and a programme of activity over, for instance, a 12-month period can achieve far more positive outcomes for the customer ultimately than wholesale, immediate changes. Also the proactive approach is likely to mean less work around business reviews as we have seen in the past. Gradually the reputation of the industry would have the opportunity to heal.
Simon Collins is managing director, regulatory, at Eversheds Consulting