/ Money

New financial watchdog – we don’t want a lapdog

It’s the New Year, and in the spirit of turning over a new leaf, the government is throwing out the old rule book to recast the way the banks are regulated. Great – but we want to make sure this watchdog works…

Avid readers of Which? Conversation will know we’re pretty excited about the Financial Services Bill. We gave evidence to the committee that was set up to examine the draft version.

The Bill represents a once-in-a-generation opportunity to change how banks and financial firms are kept in line, and we’re determined to make sure that consumer protection is at the heart of the new system.

We want a watchdog, not a lapdog

So today, we launch our ‘Watchdog not Lapdog’ campaign. We want to make sure that the new financial regulator is the watchdog that consumers can count on, not a lapdog that panders to the interests of the banks.

Across our work we have seen how the current financial regulator, the Financial Services Authority, has failed to protect consumers from dodgy financial products and services.

We’re pleased that the government wants to provide the new regulator, the Financial Conduct Authority (FCA), with the ability to remove dodgy products and ban misleading adverts. We hope that these powers, plus increased openness about its activities (such as which firms it’s investigating) should go some way to ensure that consumer protection is at its heart.

What will make the new watchdog a success?

To be the watchdog consumers need, the FCA must be:

  • An open regulator that tells consumers what it does: We want the FCA to tell consumers when firms are found to have broken the rules, what it’s investigating and what it’s going to do to stop it.
  • A strong regulator that stands up to the banks and promotes competition: We want the FCA to issue fines that are big enough to act as deterrents and promote competition by making sure products are transparent, simple to compare and easy to switch between.
  • A proactive regulator that acts on issues before they become problems: We want the FCA to take a more proactive approach and ban dodgy financial products and misleading adverts before they cause problems. Lessons must be learnt from the payment protection insurance mis-selling scandal.

So if you agree that it’s about time we got a financial watchdog strong enough to stand up to the banks, support the campaign by telling the government you want a watchdog, not a lapdog – and share your thoughts in the comments below.

We’re also looking for a suitable dog to front our campaign. If you think you’ve a pooch perfect for the job, find out how you can nominate your dog to be the face of our campaign.

[UPDATE] – On Wednesday 22 February 17.30-19.30 Which? is hosting an event with the new head of the FCA, Martin Wheatley. This event, held in central London, will be a chance for people to share their experiences of the banks, insurance providers and other financial services that they use on a day to day basis, and tell Martin why he needs to make sure the FCA is the watchdog consumers want.

Now the Financial Services Bill is going through Parliament it’s more important than ever that Martin hears about your experiences. Its clear that Which? Conversation commenters have a lot of experience of the kind of things we want the FCA to stamp out, so if you want to attend the event please get in touch at: which.campaigns@which.co.uk or tell us about your experiences below.

Roger Griffiths says:
19 January 2012

I am about to switch from RBS (soon to be santander owned) to an UK based bank that do NOT have shareholders!!

So Roger, what is the name of your new Bank and why did you choose it?

I am probably much too cynical, but even if we were to get the sort of watchdog we seek I think we should insist on some controls. For example, over time our consumer-foccused watchdog may become distracted by the lobbyists that try to influence him or her, the finance companies may give perks that later cause influence. Look at how our politicians were influenced by the Murdoch organisation.

I propose the watchdog should have an odd number of board members who can instruct the watchdog on actions. The majority of board members should be from the consumer side of the equation, the minority can be from finance companies and/or banks. One of the consumer side people could be a senior Which employee, others can be chosen from consumer focussed organisations. We also need to be able to read the complete minutes of the board meetings to ensure that the consumer is properly represented.

To regulate the banks, or any other business, it is essential that there is a SINGLE regulator who is strong and fearless. The recent debacle was largely caused by having a trio of weak regulators (FSA, Treasury and Bank of Enland) who blamed each other for the chaos this produced. Also the retail side of banking must be ring-fenced with the ‘casino’ side beng allowed to fail.

I agree with Topher that the board should have an odd number of members – and three would be too many.

David Jobson says:
19 January 2012

I don’t want a watchdog. I want a guard dog that barks early and loudly and then bites if the offender persists. In particular the self serving circle of moving funds without value added and then rewarding the initiators needs external controls to have internally decided salaries and bonuses regulated. Competition is barely separable from collusion in banking practice. It seems banks can fail and be bailed out, but bankers somehow do not. TRY: Bank A lends to Bank B (bonus earned); Band B lends to Bank C (bonus earned); Bank C lends to Bank D (bonus earned); Bank D lends to Bank A (bonus earned): Have you spotted the flaw? Those bonuses are more a parasitic fiscal drag on circulation than any economic value added. TRY:Bank A lends to hedge fund (bonus earned); Hedge fund buys Bank B (bonus earned); Bank B lends to Bank A (bonus earned): Have you spotted the flaw? A simplistic picture but tell me if this is not correct in concept?

Josh says:
31 January 2012

And the government get’s their tick along the way and you get nice roads, accessible schools and law enforcement. Win Win. But seriously, bonuses should be the least of our worries, it’s the leverage of those transactions and the false economy that is propped up by it that is the real concern. Dig deeper!

Yes we need a watchdog that bites. Regulators in both the USA and Britain have failed us and would at best be mewling kittens. The billions should not have been paid out to the gambling and negligent banks. Instead, the government should have made loans to businesses and mortgages for home owners from a newly formed state lending organisation (maybe under the auspices of the Bank of England); while guaranteeing account-holders funds up to the level they have already done. The existing arrangements are like replacing fire engines with petrol tankers.

Pat Soutter says:
20 January 2012

It is dangerously simplistic to blame the Banks for the current crisis and to assume that a “better regulator” will prevent a recurrence. The effects of IAS 39 introduced in 2001 have been ignored completely in the popular media but the results of implementation were disastrous. It reversed sound banking practices that had been in place for 100’s of years. It was implemented by a regulator with an international reach and widely approved by politicians. The concerns voiced by the banking industry and the world of business were ignored. Now, after the horse has well and truly bolted, this regulation is being amended.

The central problem with regulators is that they often lack practical, hands-on experience of the industry they regulate; they do not have to take responsibility for the results of their decisions; and they are quickly overtaken by hubris. I do not think that a barking or bighting dog will prevent a similar problem in the future. Dogs that bight usually get put down.

What is required is a wise Owl with excellent hearing and a long memory.

Pat Soutter says:
20 January 2012

I should have made clear that I am not a banker, nor do I work in the field of finance.

Barry Sears says:
20 January 2012

As an IFA, I’ve been regulated by the FSA for years. I don’t think anyone outside of my industry would believe the level of regulation we are currently under and the resulting additional workload and cost we endure. However, I’m a big believer in regulation, because it does protect the consumer and without it there would be much more bad advice. I’ve been critical of bad banking practice long before Which got wind of it and have helped many clients out of poor value and missold plans. So yes, regulation needs to improve. However, you need to know that regualtion costs money and ultimately the cost is passed on to the consumer. Many advisers are raising their client fees to keep their businesses profitable.

Barry, I am only too well aware of the degree of regulation but the failure of Equitable Life and the lack of compensation shows that all the paper does is add cost and bureaucracy. The papers I get with my annual PPP contributions are voluminous but give me ZERO additional protection. Which? itself has done a better job than any Govt regulators,auditors or the police/DPP ( how many bankers have been charged with negligence -Companies Act 2006 c. 46 Part 10 Chapter 2 The general duties Section 174 requires directors to exercise REASONABLE care,skill and diligence and i believe the Americans have even stronger requirements of bank directors but has an RBS executive even smelt a remand cell? )

John G says:
20 January 2012

Referance Barry Sears, I agree with his comment. There is a lot of regulation but the system is top heavy now with paper. What is needed is editing and superior management. One of my banks provides me with a personal banker another uses a call centre several hundred miles away. Never buy foreign shares through a nominee account unless they are recognized by Crest first. A noisy fox terrier for the dog.

Having lost much of my retirement nest egg (over £50k) through the fall in RBOS banking shares alone I believe the governement should compensate me in full as the loss should have been prevented through the FSA doing their job which they clearly did not, they have been a joke. Hence a clear need for an “FSA” with a remit that puts fear into financial business that might be thinking of stretching itself beyond reasonable limits and those limits should be predefined and accepted by the powers that be. There was also some teeth lacking in the mouth of the investors, pension funds etc, what were they doing to allow such poor practice on their watch.

John Scholfield says:
20 January 2012

The only effective answer is to have ONE REGULATOR with effective legislation to back it up.

The current situation cannot be allowed to continue, as this is just making a mockery of our industry.

The banks must be restrained and the investment arms completely detached from the personal banking system. This must be effective within, say a maximum of one year from now. Even though the banks have made all sorts of excuses.
Lastly, have we got the muscle to see this through. I hope so.

Richard says:
20 January 2012

(1) Separate normal banking practice from gambling;
(2) Ensure that normal banking is run by a CIC (Community Interest Company) not a PLC;
(3) Tax gambling transactions, whether horse racing or hedge funds.

Graham Harrison says:
20 January 2012

Financial Penalties

Fining a bank £2 million pounds for blatant indiscretions is meaningless and I would suggest, no deterrent.The big boys should be made an example off and fined £50 million pounds for prolonged discreditable practices. I accept it will dramatically effect shareholders but they will quickly remove C.E.O’s that condone misselling of inappropriate products. CEO’s cannot disclaim knowledge or responsibility for dishonourable sales tactic because pressure is brought on the salesman to hit targets and then protest it was a rogue employee and not common practise or company policy. But my cynicism will never allow me to believe in appropriate justice; the “system” will never support such a draconian attack on itself.

I don’t think fines will work of any size because , as you rightly say , the “system” is rigged. I think that all financial institutions, and that includes the plethora of non banks , need to have criminal mis-selling as a potential custodial offence. The Payment Protection Insurance and its ilk show how far things can go wrong but I don’t think any directors have suffered personally. As with FTSE Director salaries, there is a complete disconnect between reward and performance. No number of Watchdogs will change things until there is a real threat of prison – look at RBS , HBOS and Equitable LIfe.Any charges? No , just whopping pay offs except for shareholders and policy holders . Real leadership can and should be rewarded such that leading Tesco’s or Rolls Royce as Sirs Leahy and Rose did should be worthwhile and is of significant benefit to the UK economy. If Tesco’s, for example, had a POLICY of selling potatoes that knowingly induced food poisoning , who would suffer?

Mick says:
20 January 2012

I have mountains of information that, on the face of it, indicate that far from helping customers bring the banks to book the major regulators FOS, FSA and OFT are complicit in protecting the banks from mass legal action by customers.

grob says:
21 January 2012

Absolutely agree with this.

Be fantastic to actually have a regulatory body with the backbone to do what they are meant to do.

I won’t hold my breath though.

ChrisF says:
1 March 2012

It is not only the banks that they are protecting. I have just finished an abortive 18 month process with the FOS who came down very clearly in favour of the insurer. They even stated that the ‘Regulator’ defined the documents but failed to state the Regulator’s intent for the documents. I am guessing that the FOS just issues confusing statements in the hope that we give up.

Mick says:
20 January 2012

Forgot to say if anyone at which wishes to discuss my previous comment please feel free to contact me. In fact I’d welcome it.

Paddy Murphy says:
20 January 2012

What annoys me most are the standard pages and pages of hundreds of terms and conditions one receives from banks and insurance companies.. The complexity is almost fraudulent in context. I received standard one hundred pages of them recently from a well known bank. Are they really enforceable, or are they there just to confound and scare us?. Apart from special circumstances I think that standard terms and conditions should not exceed one clearly and simply written page.

Malcolm says:
20 January 2012

I see the activities of financial advisers and insurers in the course of my work as a TPAS adviser (resolving pension disputes). FSA regulations do not prevent conflicted advice or inappropriate sales, it merely sets soft parameters within which products can be sold and churned without offending the vague principle of treating a customer fairly. Only when the definition of fairness is challenged by a consumer is an activity retrospectively examined to decide if it was fair or appropriate. The system is driven by looking through the rear mirror.

I could point out the next pensions mis-selling scandal which is occurring that isn’t seen as wrong simply because it isn’t yet seen as unfair because it is not breaching an existing recognised non-compliant activity.

My other gripe is that it should be clear to the FSA that the public is not getting appropriate pension advice. Well run trustee based schemes would not expose investors to equity markets close to retirement, figures I have seen show that 85% of individuals cashing in their pension pot at retirement were 100% in equities exposed to both adverse equity market movements and adverse annuity rate movements. The whole system focuses on products and product performance not adequacy of risk management advice.

Spot on Malcolm but why don’t you articulate the current mis-selling scandal so that Which? can put pressure it

Janice says:
22 January 2012

Re FSA and Registered, not Regulated companies:
Crown Currency Exchange, the foreign exchange company which went into liquidation in October 2010, was ONLY registered and NOT regulated by the FSA. Some of us were not aware of this and subsequently lost thousands. The case is ongoing. The company SHOULD NOT have been allowed to deal with people’s hard-earned cash at its outset or its demise. It, like perhaps many other companies still out there require strict regulation. £20 million down the drain, Barclay”s Bank conducted transactions right up to the day the company floundered. THEY SHOULD BE HELD ACCOUNTABLE TOO!! Signed: DISGUSTED.

For years we have had to put up wuth weak or non existent financial regulation to the detriment of everyone the exception being the regulators who quite candidly are the puppets of the politicians. I hope this will change but I wont hold my breath.

I agree with Digitalgenius. The Finance industry is enormously powerful, and the politicians have not had the courage to put in a proper regulation process – dare I say that they choose not to, because of the potential effect on their standard of living.

So what shall we, the people who fund this terrible situation, do? We can’t go on strike. We can’t choose to use an alternative supplier, because there are not any. We are stuck with the bandits that are there.

Lets all try to persuade Which to make a ‘super complaint’ to the government to put in proper regulation of every company in the finance business with 100% reimbursement and large fines to directors when things go wrong.

If you like this idea, put a tick on the blue thumbs-up symbol below to show your support.

If we get a large number of ticks, perhaps Which will have the courage to do what the politicians are too fearful to do, or will Which choose the easy way out and quietly drop this huge issue?

Alison says:
23 January 2012

I worked in banking for years and could tell you stories which would make your hair curl and shareholders have a fit. The FSA were looked upon as a veiled threat, they didn’t employ enough people to be seen as a player who could impose strong fines and rules within the banking world. They were almost seen as a joke by the big boys of banking as they had them in their pockets. Until banks stop driving staff bonuses and incentives (especially in these tough economical times) and this comes all the way down from the top, nothing will change, there will be continued mis selling and illegal activity and the Managers will promote this as they are fearful for their jobs and they have to hit their targets if they dont want to be on a performance plan. The bullying and humiliation which goes on is terrible and it’s brushed under the carpet as this is what makes people achieve targets and the fat cats get fatter. The people at the top do not care in the slightest about customers its all about profit, profit, profit, sell, sell, sell and this has to stop, you only have to get access to peoples expense claims from several years ago to see how much money was wasted on incentives and prizes for top sales people, this would really open up a can of worms, drink driving managers losing their licence and a chauffeur being provided instead of being sacked, mini breaks abroad and staff getting so drunk they are sick in the street I could continue but will the next regulator be strong enough to compete with them? No as they just threaten to off shore all their jobs and the govt wouldn’t allow this to happen currently so I applaud what you’re trying to do and genuinely hope you’re successful but I think the banking world have the govt backed into a corner

I used to work on the fringes of the financial services industry as a journalist. I can’t claim to have seen the horrors that Alison mentions as I wasn’t an insider. But I was close enought to be able to confirm that the comments above come as no surprise to me at all.

A shift in the government’s long-term approach to regulation (by all political parties) is key. For years the focus has been and remains on how financial products are sold, instead of on the products themselves. Clamp down on the products, which — from endowments and structured investments to PPI and pensions — are designed for the benefit of providers rather than consumers, and you’re half way there. The finance industry will of course squeal about the absence of choice under such an approach. Personally I can do without the kind of choice that brought us the mis-selling of pensions, endowments, mortgages and almost any other financial product you care to mention.

Paul says:
25 January 2012

Back in August 2011, my wife and I received a payment release form from Aviva for our mortgage endowment. Told us this was to do with UK Money Laundering Regs. Seemed Aviva had to check up on who we were although we had been paying monthly premiums for nearly 25 years. Also told us we had to sign form before Aviva could release money and that in doing so we confirmed we were happy with (shortfall) total quoted.

Didn’t sign form because we weren’t happy and considered that our complaints had never been properly answered by Aviva executive leadership team. Guess what? Our money didn’t arrive on 25 year maturity date. Aviva left us in dark for nearly eight weeks until a letter confirming payment arrived just before Christmas.

It’s possible that Aviva delayed payment in order to try and get us to sign up. No explanations though in letter about our unsigned payment release forms that demanded signature to say we were happy before our endowment payment could be released.

Question arises as to whether Aviva is trying to coerce older customers to sign these forms in order to stifle customers’ unresolved complaints, under guise of UK money laudering regs, using the tactic of withholdal of policyholders money until they do sign. Aviva wouldn’t do that – or would it.
One for Regulator to review may be?