THE rot set in when banks, building societies and insurance companies no longer regarded customers as requiring a service but as potential buyers of financial products.
The findings of a survey by the Financial Services Authority (FSA) released yesterday confirm what consumers already know. Even after the near-collapse of major British banks, the institutions have remained obstinately focused on extracting profit from their customers oblivious to the fact they were losing their trust. Bank of Scotland and Halifax customers may not be surprised to learn that Lloyds Banking Group's failings were so serious it has been referred to the FSA's enforcement division and may be fined. Before HBoS became part of the Lloyds Group in the taxpayer bail-out, the target-driven culture had become apparent when a cabbage was placed on the desk of an employee deemed to be underperforming. It would appear that at some banks cabbages have been replaced by carrots of a size to skew the advice offered by staff towards specific products. Incentives revealed by the FSA's survey included a £10,000 "super bonus" for the first 21 staff to reach a target, effectively turning their jobs into a race, while others could be £10,000 better or worse off depending on what they sold.
Martin Wheatley, the FSA's managing director, has finally admitted that incentive schemes were often "rotten to the core and made a bad problem worse". As head of the Financial Conduct Authority which will control regulation when the duties of the FSA are split next year, however, he must back up his promise to change the culture with an effective regulatory regime. Closer monitoring and swifter sanctions for institutions which put profit before responsibility are essential.
He should be pushing at an open door. Banks currently facing £9 billion worth of claims from people mis-sold Payment Protection Insurance (PPI) and required to provide redress to small businesses sold unnecessary and inappropriate interest rate swaps ought to welcome a retreat from cut-throat competition over sales. While much has been made of the advantages of the "casino" culture investment banking, where the inter-bank lending rate was scandalously from the retail arm, it is clear that the incentive schemes led to equally unprofessional practices in local branches.
Mr Wheatley's warning of more intrusive action on banks which fail to clean up their act in 12-18 months must be followed by a vigorous wielding of its new broom by the Financial Conduct Authority.
The first requirement is transparency. Customers who fully understand any agreement they sign up to and are confident bank staff are on their side will be loyal.
Banks need to make profits but they will not regain the trust of customers without being able to demonstrate a fundamental change of culture has taken place at the highest level.
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