Fair treatment of customers lies at heart of future says FCA director
Adamson: the FCA has made a “positive” contribution in its first year of life
New UK regulator the Financial Conduct Authority aims to put consumer trust and reformed business culture at the centre of its agenda for the UK financial services sector, according to Clive Adamson, director of supervision at the FCA.
“Three years ago people thought conduct was a compliance feature,” said Adamson, addressing the Building Societies Association annual conference in Manchester. “Now it’s firmly on the agenda in boardrooms. Banks have recognised the costs of getting it wrong in fines, costs and reputational damage. They are also recognising the benefits in terms of customer trust. Its about building a positive reputation for fairness. We have made a positive difference.”
“If the market worked perfectly, there’d be no need for us,” said Adamson. “Firms would treat customers well because it would be in their best interests. A firm offering poor service would go out of business. In many other sectors, this happens, but it doesn’t work in financial services. That’s why a regulator is needed to ensure the market acts fairly. The market is otherwise biased against the consumer.”
The factors behind the financial services sector’s inability to service the customer effectively without supervision are many, according to Adamson. The main ones are that the products are complex and hard for customers to understand, making it difficult for consumers to judge the fairness of what they are being offered. This situation leads to customer inertia, which is exacerbated by the lack of difference between providers. The result is a market that isn’t as competitive as it should be, he added.
“We are about making markets work so retail consumers get fair outcomes and wholesale markets act with integrity,” said Adamson. “If this can be achieved, trust in financial services will be restored. We don’t want the interests of consumers to be twisted by shareholders. We believe having the right culture is essential for good conduct performance. That is why we think you [the building societies] have an exciting future.”
Adamson added that shaping the future should mean understanding changing consumer tastes and how new technology is revolutionising services. It should also include understanding and responding to what regulators are trying to achieve. Product design involves understanding the needs of different customer groups, he said. Firms should challenge themselves to do well for borrowers by empowering front line staff and making processes to ensure fair treatment of customers based on their specific financial and personal factor circumstances.
“This is not a fluffy view, but a hard-edged embedding of business practices to decide how decisions are made,” said Adamson. “Clear leadership, constant reinforcement, effective management and penalties for not doing the right thing are key. Our approach is to be judgement based, pre emptive and tough when things go wrong. Working collaboratively with the industry means we can get better outcomes more quickly and obtain a better balance for consumers.The final aspect of good is governance. It should help achieve the fair treatment of customers, which lies at the heart of sustainable businesses.”
Several attempts have been made to improve competitiveness in UK retail banking in the last year. One of the most prominent is the UK Payments Council’s seven-day account switching service, which launched in September and which obliges banks to transfer a customer who wishes to do so to a rival bank within a maximum time period of seven working days. The service offers UK consumers a guarantee, under which the bank is liable for any mistakes. Although the effectiveness of the service has been debated, it is clear that some banks such as HSBC and NatWest are losing customers while others such as Santander, Halifax and Nationwide Building Society are gaining numbers. For the six months from 1 October to 1 April, there were 609,300 switches using the UK Payments Council’s official switching service in total. To be counted in the figures, a customer needs to complete the process from start to finish, including closing their old account. Customers that simply move their salary and direct debits across to a new bank but keep their old account open are not included in the figures.
The FCA was established on 1 April 2013, as part of a major reshuffle of financial supervision. The previous UK financial regulator, the FSA, was effectively disbanded and replaced by two separate organisations, the Prudential Regulation Authority and the Financial Conduct Authority. The FCA is responsible for promoting effective competition, ensuring that markets function well, and for the conduct regulation of all financial services firms. This includes acting to prevent market abuse and ensuring that consumers get a fair deal. The FCA also supervises asset managers and independent financial advisers, which are not covered by the PRA.
The PRA was created to oversee the prudential regulation and supervision of banks, building societies, credit unions, insurers and major investment firms. Unlike the FCA, the PRA is part of the Bank of England, and it regulates around 1,700 financial firms. The PRA makes forward-looking judgements on the risks posed by firms to its statutory objectives, which are to promote the safety and soundness of the firms which pose the greatest risk to the stability of the financial systemthese firms and to contribute to the securing of an appropriate degree of protection for policyholders.
