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Richard’s speech to bankers & regulators on banking reform

A build your own bank kit

Our executive director Richard Lloyd recently spoke at the Westminster Business Forum on the ‘Next steps for banking reform’ to regulators, MPs and banks. Here is an extract from the speech he gave.

‘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.


Tories PLEASE take over the banks and insurance companies and stop all this cheating at source

What’s not been noticed yet is that all these charges and refunds that banks are being forced to pay out (PPI for example) are being funded by excessive charges for banking services. These are affecting those at the bottom of the social pyramid the most. A £30 overdraft fee is more likely to be encountered by a family on minimum wage and will have a bigger impact on them than on those better off. It’s a shame that no one is addressing that.

What happened to Govt plans to separate retail and investment banking? Is that still in progress or Is the £85K guarantee on consumers savings a cover up to allay peoples fears their money is safe [but potentially still accessible by the banks and at ‘risk’ in the event of another crash] to prevent this being implemented? Do we have sufficient trust in the banks yet to put customers interests above their own? Is this lack of trust one reason why people are investing in ‘ buy to let’. At least they will be assured of a reasonable return in the event of another housing price crash.

I tend to worry when governments pass new laws as part of a knee jerk reaction to something.
The law of inintended consequences seems to govern this sort of thing.

The problem with financial miss selling of all kinds, lies with the traditional method of packaging a financial product, and using semi-qualified people with a script to sell on a commission basis. Selling an unsuitable product is tantamount to fraud, try and be fair for a change and help people buy genuinely suitable products. Stop the ” shove it out now, and take the flak[ or hide from it] later philosophy.

Doug Carr says:
11 April 2014

So far it has cost us £456.33 Billion to bail them out and they are still far from mended (see University of Loughborough “Liquidity of U.K. banks”).
They have been accused of and in some cases paid fines for illegally :- Fixing Libor rate, fixing foreign exchange market, miss-selling sub prime mortgage investments, miss-selling PPI, Fixing the daily gold rate, using high frequency trading in equity and other markets
In March Mark Carney disclosed to Treasury Select Comm. that the Bank of England’s records of meetings during the crisis period had been shredded .
In Dec.2012 the Bank of England agreed with the US FDIC(see B of E website) that future bank failures would lead to customer “bail-in” also agreed by European Parliament Directive (see their website) Quote :- “the customers will be the last to be paid out”
Finally – that £85,000 “guarantee” – with 50 million accounts – where is the money coming from ??

The Financial Services Compensation Scheme is funded through levies on all financial institutions within its scope and is ultimately underwritten by the Bank of England and the UK Treasury.The essence of financial regulation and the supervision of conduct is to prevent catastrophic failure of the banking system. . . . . I know.

Could we have a link to the full speech please?

My initial reaction is that with First Direct as a very real example of a good bank why does rhetoric feature so much.

Secondly, also that the more “we” regulate the more expensive the process becomes with both the banks and the overseeing bodies paying vast wages ensuring that the letter of any law is followed regardless of the spirit in which it was framed.

Thirdly, banking is a business not a social service and perhaps it would make life much simpler if we actual got that thought clearly in view. If we want a “social” bank that can deal with those with no financial savvy, or have reached an age where complexity of any sort is beyond them then that would be a good idea.

Lastly, until society recognises that Directors/Executives at the time should be liable for dubious decisions with jail terms and fines the risk/reward element is very skewed. If my company and its shareholders pay for my PPI mis-selling what thrusting young executive is going to look at the longer term consequences – particularly in this headhunted company-hopping culture.?

Perhaps with Barclays [and others] releasing thousands of bank executives back into the real world there might be a pegging-back of remuneration levels and less hot-headed behaviour in future. Bad that it had to come to that, of course.