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Newsroom & speeches
07 October 2009
Trust in the global financial system has never been lower. The issue of trust in our financial services stretches back much further than the financial crisis – the industry serves up miss-selling and other scandals with depressing regularity: bank charges, pensions mis-selling, Payment Protection Insurance, to name but a few.
Rebuilding trust means rebuilding the connection between industry – not just banks but pension funds, intermediaries and brokers – and consumers – savers, borrowers, current and future pensioners.
As a first step, the industry itself must acknowledge that the values which drive its business must be built on the values of wider society.
Behaviour that would be judged as reckless and self-serving on the High Street must not be rationalised as acceptable on the trading floors of the City.
Some corporate leaders in the global financial sector have begun to talk about addressing moral failures and that is to be welcomed.
But all firms need to recognise their duty to shareholders is best served by acting in the interests of consumers.
How can the industry begin to connect with its customers?
As a start, delivering what people want: to know that their money is safe; to be able to buy straightforward products that will meet their needs, with no hidden charges or incomprehensible small print; to change to a different product when they want; to get speedy redress if things do go wrong.
Financial services firms have historically made money by doing the opposite –designing ever more complex products, many sold through commission-driven intermediaries, with complicated legalistic disclosure documents and switching made difficult or expensive.
In a competitive market, the things people want should be a given – a firm which treated its customers with such disdain would soon go out of business.
People so fundamentally distrust the industry as a whole, and opaqueness and complexity are simply taken for granted.
It says a lot about the industry that the FSA has made ‘treating customers fairly’ part of its regulatory armoury.
Rebuilding trust is a complex problem, demanding action across a number of fronts.
First, banks must take seriously their obligations to behave ethically and to generate positive, long-term outcomes, not simply overnight gains.
Second, competition and transparency are critical to empowering consumers to make the right choices and to protect their rights.
Finally, a dialogue between the industry and consumers is critical.
No one of these is a magic bullet, but we must seize the opportunity for change.
We know that good marketing is about respecting and valuing customers - it is more than just words.
We have all had the experience of hanging on a telephone line for what seems like ages, listening to that voice saying ‘your custom is valuable to us’.
Good and fair service is essential but our long-term success in financial services demands more than this.
We can’t go back to the time when all transactions were face to face –we need to find new ways to infuse business dealings with the values of transparency, respect and integrity.
In many ways the language and practice of values has been subsumed within what marketing people call ‘brand’.
Brands are central to our culture and our economy; they have been described as "cultural accessories and personal philosophies".
As marketeers you know the power of brand: what kind of brand values should we be seeking in financial services?
There is no doubt that public confidence in financial markets has been shaken.
If we are to rebuild that confidence and trust, we must not only use the language of transparency, respect and integrity – but we must ensure these values infuse every staff member, product and service.
They must be central to successful brands in financial services.
These values need to be reflected at the macro level.
Take for example the current debate about capital requirements for banks and insurers.
These new levels demanded by Government and the FSA are also, I believe, demanded by the customer.
Customers need to have confidence that banks have high quality capital, capable of absorbing losses, to promote stability and that insurers have the capital cushion to support liabilities.
They need to know that risky transactions are backed up, and that the taxpayer won’t end up footing the bill.
The role of regulation is to protect the consumer and the best protection is a stable financial system.
It is not in the consumer’s best interest to separate prudential and conduct of business regulation – the ‘twin peaks’ model.
Excessive risk-taking at the firm level can and does have systemic effects; we must ensure that the links are made more clearly between conduct of business and macro-prudential effects.
This is most effectively done in a single institution.
As a Government, we are working with the FSA to strengthen and rebalance regulation so that everyone can have confidence in the financial system.
A flourishing financial services sector relies on competition to drive up access and choice for consumers.
The Government is acting to support consumers to access the products and services they need, to improve diversity on the High Street, and to ensure that easier redress is available when a firm fails a consumer.
Putting financial advice on a more professional footing may increase its costs and reduce access for people on modest incomes.
We want them to be able to get guidance on financial issues, whether it be ‘jargon-busting’ or how to manage a budget.
We are currently running a pilot in the North of England, with trained ‘money guides’ offering help on a range of topics.
The early signs are promising – people really value the unbiased ‘sales free’ approach and are recommending the service to others. This is a brand people trust.
We have also consulted on setting up a system of labelling for simple, transparent products, to help consumers choice.
The intention is not to reduce complexity where this is inherent to the product but rather to ensure that details are presented in a straightforward way.
Back to those values of transparency and integrity.
I do not want to see another mis-selling scandal.
There must be a better way of heading off large-scale consumer detriment.
We need effective early warning systems - a new, forward-looking risk architecture - to identify latent issues before they crystallise into mass complaints.
We also must deal with those mass claims which do arise more effectively.
We have recently consulted on two potential legislative solutions.
One is to give the FSA broader powers to establish a collective redress scheme. This would require firms to investigate their back book and make redress if they have broken the law.
The second is to enable a representative body to bring collective proceedings in the courts, for any breach of the law or the regulatory rules by a regulated firm.
We will be taking these forward when we have looked at the consultation responses.
Finally, we need to rebuild the connections between the industry and consumers.
To discuss and develop all these issues we have set up a Retail Financial Services Forum.
It brings together Government, regulator, industry and consumer bodies to solve together the issue of how we restore battered confidence.
All this will be in vain unless the banking industry thinks hard about its role in society.
There is still too much focus on promoting credit; too many adverts with attractive headline savings rates which are only available if the customer buys a much less attractive linked product.
We need a step-change in behaviour.
Banking – uniquely – has the ability to cause serious damage to the economy and to the financial wellbeing of millions of ordinary citizens.
Now is the time for the industry to face up to the debt it owes society and to change its ways for the benefit of us all.
