/ Money

The new financial regulator mustn’t go soft on the banks

Spanner with pound coin

Our Watchdog not Lapdog campaign called for the new financial regulator to be strong, open and proactive. Martin Wheatley must stick to his plans for tough action – even if it’s unpopular with the bankers.

In the past, the approach of the Financial Services Authority (FSA) can be summed up in one word – ‘weak’. When a sofa shop like Land of Leather mis-sold financial products, the FSA went after its chief executive, but let the senior bankers get off scot free.

Other regulators seemed to take a much tougher approach. The Office of Fair Trading fined Argos and Littlewoods £22m for price-fixing of toys, action-men dolls and games. This was more than twice the maximum fine levied by the FSA for mis-selling.

It’s great that Martin Wheatley, the chief executive of the new Financial Conduct Authority (FCA), has been talking tough. But regardless of the furious lobbying of the banks, he needs to follow this up with action.

Don’t be afraid to fine the banks

The new regulator, which gets to work next month, must be quicker to stop banks selling toxic products. It must name and shame firms when they issue misleading financial promotions. But in a speech said to ‘anger’ the banks, Martin Wheatley said this week:

‘The absolute level of fines, you could put them up three times or five times, but it would not make much difference unless individuals are held to account.’

At Which?, we think fines need to be far higher. Only when banks take the hit will the shareholders ask banks more questions about how they’re treating customers or how they’re dealing with complaints.

As acknowledged by Martin, the FCA will also need to do more to hold individual senior bankers to account. Our Big Change campaign calls for proper professional standards and for senior bankers to face greater sanctions.

Where should the money go?

At least now the revenue from these fines goes to the taxpayer, rather than being given back to the banks in lower fees the next year. In his 2013 Budget, the Chancellor announced that some of the fines levied for manipulating Libor will go to Christmas boxes for troops serving abroad and to the charity Combat Stress – which helps veterans suffering from mental health problems.

Of course, fines alone won’t be enough to change the culture of the banking industry. We’ll also need simpler products and more effective competition. But surely the FCA should at least review its policy on how it calculates the fines levied on the banks and bankers to hit them in the pocket when they mistreat customers. We want a financial regulator with teeth, don’t we?

Do you think increasing the level of fines will lead to better behaviour from banks? What do you think the fines from the banks should be spent on?

graham says:
23 March 2013

Changing a greed culture will not be easy.Behaviours have to change starting at the top of the business. More competition is one way.shareholder voting on salaries is another. Fines and name and shame is another.(see bob Daimaond “the time for blaimng bankers is over” yeah right) Also we as customers must be prepared to move our accounts if we dont like what the banks are doing!! The Bankers plea “we must pay to keep talent” is wrong and missleading.this “talent” that we pay so much too… got us into this mess. in the first place.No I say pay reasonable salaries and train people up the talent will come to the surface. that might be too hard a concept for the City!!!
Also whilst. i am having a rant the whole footsie 100 is flawed re salaries as they appoint each other to vote on their salries…it would a brave non exce who says” no mr chairman you are not worth £1million a year “only 6 x your average employee salary! ie £120K. Wont happen will it!!

richard says:
23 March 2013

The whole system is corrupt and weak – I’ll start to believe that we have a “fair” system when the bankers are stopped from having obscene bonuses even when they are losing money – But with the Tories in ‘charge’ it won’t happen.

I doubt if fines on the banking company will have much effect – it will be treated as a business expense and passed on to customers eventually. Sanctions against individuals directly controlling and involved knowingly in malpractice may be more effective? Removal of license, fines based on salary/bonus on individuals (providing they aren’t recompensed by the bank – but then HMRC would know wouldn’t they?).

Michael G. says:
23 March 2013

The Nationwide BS illegally debited my credit card making me think I had had my identity stolen and failed to answer my phoned and written queries for 3 months and then when I said I was going to the Ombudsman sent “We are looking into it ” replies for a further 3 months before refunding the amounts and apologizing for the ‘error’ and offering £100 compensation. The Ombudsman was not interested in doing anything mainly I suspect because the amounts were only in the £100s. I did think that the original illegality could have been an excusable error but the 6 months cover-up deserved some action. Thus I would like to be sure the new body will look at cases on their merits and not dismiss them if they think the amounts involved are trivial, (by their standards).

In contrast, my daughter had her PayPal account hacked. It was linked to her Natiowide account and the first she knew was when Nationwide contacted her to say she was overdrawn. As soon as she found fraudulent use had been made of her account, Nationwide immediately refunded the charges, blocked her account from PayPal and helped her recover the situation.
We must be careful to look at overall performance, and not judge on negatives – the only ones generally reported – until a full picture is apparent.

Clearly; the need to introduce disciplines to control the upper echelons of our banking and industries fraternity is absolutely essential.

In my view, we as a society are in danger of creating the very first indispensible individual or chair. Our endeavours to rectify this are misguided, in that, so far fines are directed at the institution with the intention of engendering shareholder and also public dissatisfaction. This is most definately not working!

In the real world; working individuals secure their employment by consistent benificial moral performance, punctuated with tolerable mistakes. Should the tolerance threshold be breached; that individual becomes solely accountable. And it is the distortion of this fundamental concept that has given raise to these invulnerable ‘contract wrapped’ obscenely high bonus/salaried and perked individuals, that ultimately contribute to inflated market retail prices to the detriment of us all.

Outside of the Armed Forces there is absolutely no pay,salary parity. My, albeit small research has yielded that renumeration for Bankers and CEO’s is invariably related to international industry comparison which Is clearly; in no way tangible! Tangibility should be expressed by the example of one Council CEO, who’s name to my total shame I cannot remember; whom calculated his own renumeration as follows: 11x lowest paid in his council employment. Better that for a moral base if you can!!!

So! What I am suggesting is: That Human Resource Departments, Boardrooms and Shareholders in our country should urgently undertake to amend their fundemental approach to recruitment and employment; redirecting emphasis. ‘Taking account of talent: Employment of senior individuals should not, in essence, differ from selection and company rules that apply to all others in a given institution/enterprise.

In the long term: Profound change and amendment should be exercised on executive and senior employment contracts centreing on:’Leadership by example in the very first instance’.

In the short term: Sack those that deserve to be, let those walk who want to; ensuring they only enjoy the absolute minimum justifyable dispensation.!! Never mind this concept of we “cannot survive without them”. Where are they going to go in an industry that we all regard as a level playing field in this context. If they have done wrong, an example should be made! Use the public purse where necessary to fund the full force of the law. It will only take one or two examples!!! Above all we must stop this reward culture where it is painfully obvious that reward is unjustified.

In conclusion, it is the evolved recruitment model that is the main contributor to this detremental ‘fat cat’ bonused banker,share and pension laden CEO and senior director culture. And to the benefit of our entire society there should be huge effort, starting with the employment model, to make our country an ‘ anti greed zone’ but not to the detriment of aspiration.

David says:
28 April 2013

Banks have become so large that individually they exercise significant influence over their marketplace and governments do not feel able to allow them to fail. This means there is no downside to reckless risk taking (gambling), only upside. They are able to treat fines and mis-selling compensation as affordable overheads.

It is the responsible, well behaved customers who pay the compensation to the irresponsible customers (in the form of lower savings rates or higher borrowing rates for example), not the bank employees responsible for mis-selling. The highest paid staff continue to receive their inflated pay whatever the results of their actions. If any do lose their jobs they tend to receive a huge payout for failure. Private monopolies/oligopolies tend to behave even worse than nationalised industries.

It is difficult to envisage a solution but possibly the UK government should guarantee the deposits in UK current and savings accounts only for banks which meet specified criteria, particularly risk. The government should though allow banks to fail without compensation to employees and shareholders. Customers of banks which do not operate within the more conservative risk regulations do so at their own risk. This would entail splitting the large banks, which may not be practical now considering that these banks are global companies and may actually dictate policy to governments.

graham says:
29 April 2013

well put…….. there are so many sensible proposals on this thred on how to put the banks “right”. I just wish cameroon at al would do it!(troughs and pigs comes to mind though…e.g ex minsters get” jobs ” in the city)