/ Money

Is it time to cuff the banks?

Businessman handcuffed

It’s now more common for Britain’s banks to be hit with big fines for mis-selling, but this only serves to embarrass them. Is banning banks from selling investment products altogether the necessary next step?

It’s not surprising that the public holds the UK financial services industry in such low esteem. Over the past few decades, it’s given us mis-selling scandals in the pensions, endowment, payment protection insurance sectors – and more.

And the problem’s as alive today as it’s ever been. At the end of January, Barclays became the latest big brand to be exposed for mis-selling investments – resulting in a fine of some £7.7m.

How to stop mis-selling

Since its creation over 10 years ago, the Financial Services Authority (FSA) has talked about its aspiration to be more proactive in preventing these crises. Yet, while it’s become slightly better at handing out fines, it’s still no better at stopping mis-selling at the source.

FSA chairman Lord Adair Turner, wants to be the man to fix this. In January, he published a paper that raised the possibility of taking much more radical action to tackle mis-selling.

In place of the regulator’s current reactive approach, Lord Turner suggests that entire categories of investment products could be banned.

Can’t trust the banks

Although banning products may be a bit heavy-handed, drastic action is needed if we’re actually going to see results. But perhaps rather than outright bans, a more workable solution would be to ban the sale of particular products through certain channels. For example, stopping banks selling certain types of investment.

High-street banks have proven that they can’t be trusted to give appropriate investment advice. As our bank advice investigation showed again last year, the odds of customers being sold an unsuitable product or investment bond are unacceptably high.

If banks were restricted to selling basic investment and insurance products, it would be much more difficult for them to mis-sell. So, for instance, the default recommendation for customers looking for a home for their cash would simply be a savings account.

Go to independent financial advisers

Although some will argue that this would remove choice, it may have the opposite effect. Investors who were unhappy with the low returns they were achieving from their savings may be more likely to seek professional advice from an independent financial adviser (IFA) elsewhere.

Although IFAs may not have a perfect track record, the scrapping of commission on investment advice in 2013 should help them onto the straight and narrow.

For those who stay with their banks, the worst that could happen is that their money wouldn’t be working as hard for them as it might do elsewhere.

Banks have had the chance to prove they can be responsible in the investment market. Putting them in handcuffs may be the only way that we can ensure they’re treating customers fairly.


The real problem is that Banks and Building Societies do not adequately train staff in the products being sold. Nor do they measure staff performance based on customer service but instead they are measured on products sold.
Remove bonus/commission payments for selling and re-introduce the ethos of “meeting customer’s needs” and mis-selling would largely disappear.If Banks are worried how they would manage performace they could ofcourse re-introduce the Bank Manager.

Hard to train staff when there are so many variations, so many small print ‘ifs’ and ‘maybes’ and outright ‘gotchas’ that they don’t even understand them themselves, hence the copious pages of rules, or T&C’s.

Plus when they get to grips with one products, it is replaced with weeks by another with different sets of rules and so on.

Fleas with fleas upon infinitum etc

John Knox says:
23 July 2012

I disagree about the banks being given big fines. Barclays despite their corruption and fraud (I will call it what it is) were given a 30 odd percent discount by the FSA for co-operating with their investigation! What an absolute joke the FSA are! Just another slap on the wrist for another corrupt bank.

Banks should be forced to reform and simplify their products. They should also be broken up and any bank reasonably involved in the Libor rate fixing fraud should lose 75% of its branches in the UK as punishment. They should then be sold off by the government after being broken up by region to different companies, fresh new companies and investors. They will have to agree new conditions as part of banking license.

The Banks involved in the fraud should lose license to operate more than a certain number of branches that is something that really would punish them and be a just and fair punishment, oh, besides of course seeing the bankers involved in the back of a police van on the way to prison.