WHEN Stephen Hester said recently he wanted to put customers at the heart of banking, it was the latest in a series of humble outpourings from bank chief executives intent in making peace with teed-off consumers.
António Horta-Osório, the chief executive of Lloyds Banking Group, which owns Bank of Scotland, noted in September that "issue by issue and scandal by scandal, the faith and trust in our industry has been eroded". The banking model, he said, must be "recast". We want to rebuild trust, was his unambiguous message.
Yet fines from the financial regulator don't help. Bank of Scotland has just been stung for £4.2m by the Financial Services Authority (FSA), for relying on inaccurate mortgage records for 250,000 customers between 2004 and as recently as 2011. The regulator noted that, if it weren't for complaints by consumers who brought the issue to light, 160,000 customers might never have received the £162m compensation they were entitled to.
It is yet more proof – as if any more were required – that the reforming zeal of the post-2008 generation of bank chiefs will not be enough to restore trust.
A hawkish, vigilant and independent regulator is required to ensure that banks operate in the best interests of their customers.
The FSA is being broken up and its functions split between a Financial Conduct Authority, which will have the power to ban risky products and make judgments about a firm's business model, and two new agencies of the Bank of England, the Financial Policy Committee, responsible for regulation, and the Prudential Regulation Authority, which will keep an eye on individual firms.
Few will mourn the FSA's passing. It was fatally undermined by its failure to challenge the takeover by RBS of part of Dutch bank ABN Amro in 2007, a deal that badly weakened the Edinburgh-based bank. Only yesterday, the Commons Treasury Committee noted in a report on the merger that the FSA "should and could" have intervened, even at a late stage. The MPs stated: "We need a regulator with the self-confidence to intervene, even if it might cause some destabilisation in the short-term."
Hear, hear. On the rubble of the FSA, a new regulatory regime must be built that is tougher, more proactive and, above all, prepared to stand up to the powerful bosses of financial services companies in the interests of customers. Stronger regulations and a stronger regulator are the best hope of avoiding a future banking crisis.
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