The financial services industry has come a long way since the horrible days of 2008 and what seemed at the time like impending doom.
The balance sheets of the country’s biggest banks have been painfully rebuilt – in Lloyds’ case so robustly that the government is now planning to sell £2 billion of shares it bought in the wake of the financial crisis to retail investors (the likes of you and me rather than big City institutions).
All things being well, the shares will go on sale next spring at a 5% discount to their market price with bonus shares on offer to those who hold them for more than a year. If you haven’t done so already, register your interest now – it seems like an investment no-brainer.
We also have a more competitive banking industry than we had seven years ago with the likes of Aldermore, Metro and TSB (spun out of Lloyds) all vying for our business – helped by new rules that now make account switching a joy rather than a chore.
So time to rejoice at the emergence of a competitive banking sector as part of a wider financial services industry where the consumer roams supreme? Sadly not. In your dreams more like.
In recent months, there have been a number of changes in the composition of the financial services landscape that should set alarm bells ringing in the ears of all consumers. These changes have resulted in a weakening in the voice of the consumer.
As one leading financial academic – a fervent consumerist – told me recently over a skinny latte: “Producer interests are being allowed to undermine the consumer, destroying the purpose of markets”.
Consumer rights, he adds, are being threatened, creating an environment where the banks could start once again to ride roughshod over customers. A frightening prospect.
He blames the government and, in particular, George Osborne’s ‘new settlement with the City’ for this worrying sea change. Banks, badly beaten up for their part in the 2008 financial crisis and fined to the hilt for a series of misselling deeds, are now being allowed to determine the travel of financial regulation. As a result, consumer safeguards are being weakened.
A proposed law that would have made bank executives more accountable for wrongdoing at their institutions has been seriously diluted, as have plans to ringfence the retail operations of banks, protecting customers from riskier investment banking activities going wrong elsewhere within the business.
Yet it’s the changes at the City’s regulator that most trouble my academic. He says the recent axing of Martin Wheatley as head of the Financial Conduct Authority (FCA) is a worrying development.
Wheatley was brought in to head up the FCA when the Financial Services Authority was found not to be fit for purpose and asleep at the wheel in the lead-up to the financial crisis. It was disbanded.
He came in with a great big whip, determined to carry out the regulator’s stated aim, which is to ensure consumers get a fair deal and that buyers of financial products are assured firms have their best interests at heart.
He cracked his whip fiercely, fining individual banks for their part in payment protection insurance misselling and the fixing of interest rates.The banks didn’t like it and they let Osborne know. So the whipping had to stop. Wheatley was seen as too pro-consumer and shown the exit door to make way, presumably, for someone who is happy to subject the banks to a lighter regulatory touch.
There are now also concerns that the regulator’s governing board is changing in composition for the worse, as some members known for their consumer zealotry are being replaced by less passionate individuals.
Recently, Bank of England regulator Paul Fisher warned that the ‘siren voices’ of the banks were attempting to dilute regulation aimed at averting another 2008 financial crisis – “voices of financial self-interest that were partly responsible for luring us on the rocks in the first place”. This is exactly what my academic thinks.
As buyers of financial products – everything from bank accounts through to mortgages – we should all be worried. Extremely worried. We deserve better.