Legislators must force cultural change in financial services

Peers are today set to debate imposing a duty on the financial services industry to act honestly, fairly and professionally in the best interests of consumers following a campaign by the Financial Services Consumer Panel. The Panel has gained cross party support for an amendment1 to the Financial Services Bill which aims to increase consumer rights by driving a cultural change in the financial services sector.

The Panel has long argued that the defective culture of financial services organisations is at the root of misselling. Providers putting their own interests above those of the customer have characterised both the PPI and Libor scandals. The Bill requires consumers to take responsibly for their decisions but there is nothing imposing a duty of care on the industry.

Adam Phillips, Chair of the Consumer Panel, commented:

“Yet again we find ourselves debating another financial services scandal caused by the defective culture of financial services providers. Historically, financial services providers such as bank managers could be trusted to act in the best interests of consumers. We need to instil a new philosophy in our major banks and financial institutions of honest, fair and professional behaviour towards customers. This needs to be embraced throughout these organisations and in particular at the highest levels.

At their core, recent scandals such as interest rate swap misselling have the pursuit of profit with a complete disregard for the interests of customers. The incentive to bend the rules and to make a profit at the expense of the client needs to be removed. This must extend to examining the dubious reward structures which have been found to incentivise misselling.

Given the strength of cross party support we hope this will galvanize the Government into accepting the amendment. Only tough action to change the culture of firms will result in more ethical behaviour.”

1. The Consumer Panel’s amendment is listed on the Fourth Marshalled List[1]. 106A is tabled in the names of a cross party group of Peers including: Lord Sharkey (Lib Dem) Baroness Hayter of Kentish Town (Labour) Lord Eatwell (Labour) and The Lord Bishop of London (Cross Bench). Other related amendments include 138A and amendment 108C.
2. The Panel’s briefing document on the Financial Services Bill[2] and on competition[3].
3. The Consumer Panel is a statutory body under the Financial Services and Markets Act 2000 and was initially established by the Financial Services Authority in December 1998. The Panel advises the FSA on the interests and concerns of consumers and reports on the FSA's performance in meeting its objectives.
4. The emphasis of the Panel's work is on activities that are regulated by the FSA, although it may also look at the impact on consumers of activities outside but related to the FSA's remit. More information about the Panel's work[4]
5. Photographs and biographical details for Adam Phillips[5]
6. Panel members are appointed to serve a maximum of two terms of three years.