Richard’s speech to bankers & regulators on banking reform

‘First of all, the regulators: we need to see the Competition Markets Authority (CMA) and the Financial Conduct Authority (FCA) showing that they mean business, making it plain to the firms they regulate that the industry has got to work harder for consumers.

‘And, the industry, of course, also has to redouble its efforts to regain trust, and the work that Sir Richard Lambert’s doing on professional standards is absolutely vital to that. But, we’ve got to see regulators getting that they’ve got to work extremely hard to protect consumers and inject competition into financial services.

‘When the OFT’s Board looked at a potential referral to the Competition Commission in the current account market, it was split. I tended to agree with those who were in favour of a referral and the reasons I say that are six-fold.

Banks should be referred for investigation

‘First of all, are firms competing genuinely on the basis of quality, innovation and is there cost driven efficiency in products and services? Or, are firms exploiting consumers’ behavioural biases? Secondly, do consumers have access to differentiated, meaningful choice of products that meet their needs and offer them value for money? Third, is pricing and quality, and the characteristics of products transparent, easily comparable, or are there lots of products with hidden terms, hidden charges, for example?

‘Fourth, are consumers engaged in sufficient numbers to drive competitive pressure in the market? Fifth, do consumers have sufficient capabilities to do that? Are there low barriers to switching, either real or perceived? And finally, are consumers able to get effective and speedy redress when things go wrong?

‘And, I would suggest, if the CMA, as it’s promised, takes another hard look at the personal current account market, and measures it against some of those tests, then the industry will be referred for a full competition investigation next year. I don’t think – as the Independent Commission on Banking recommended in its report – there’s enough being done by the industry to avoid that.

‘What I’d like to hear from the CMA is their articulation of the benchmarks that they expect to be met, and to give a clear sense of direction to the industry.

Banks must put customers first

‘On innovation: there’s lots happening. And, it’s also good to see the Prudential Regulation Authority and the FCA looking afresh at how they can encourage new challengers in the digital space. But, there’s some basic innovation in retail banking at the core that’s needed first, without which trust in the industry won’t recover. That is, and it’s sad to have to say this, the innovation that is putting customers first in retail banking.

‘Aligning incentives for staff with good consumer outcomes. Ensuring that the behaviour that lots of people at the top of banking have been talking about is seen at the frontline. Ensuring that products and services are designed around the consumer, not around sales. Ensuring that there is that simplicity, that transparency. Getting away with terms and conditions that no one will ever read. The best example we talk about at Which? is the set of current account T&Cs that are longer than Hamlet.

‘What on earth is the industry doing if it wants to regain the trust of consumers, if it’s still relying on inertia, still relying on hidden charges, still a lack of transparency, still reluctant to embrace a real meaningful sense of helping consumers manage their money?

‘And, we know that some of the barriers to this happening is just a woeful under investment in IT systems. We want banks to think about the data they hold and how they can use it to help people make better decisions.

Banks should try harder to avoid regulatory action

‘So, finally, just back to where the regulators need to be. I think we need to see very early and tough action by the CMA and the FCA working together. Your sector needs to be right up there on the list of priorities alongside energy.

‘But, actually, we’d like banks to avoid regulatory action; to be thinking about what they can do to improve customer service; to genuinely compete on what they offer customers; realigning incentives staff with the needs of customers; helping people to save money; helping people to be more mobile, more savvy in the sector. If we can see more of that pro-activity then maybe you will avoid a competition investigation in retail banking. But, right now, I’m sorry to say that it looks inevitable.’

This is an extract from a speech given by Which? executive director Richard Lloyd at the Westminster Business Forum ‘Next steps for banking reform ‐ competition, stability and standards’ seminar on Tuesday 1 April at the Congress Centre, London.