The front page of the BBC News website does not paint a pretty picture for the banking sector this morning.
With the main headline about Barclays boss Bob Diamond refusing to resign over his role in their rate rigging scandal, it is also reported that the Financial Services Authority (FSA) has found ‘serious failings’ in the way banks sold interest rate swaps to thousands of small businesses.
The Barclays Libor scandal involved staff at the bank attempting to manipulate the daily calculation of Libor, the London Interbank Offered Rate.
Libor is an important reference rate for various financial instruments used by the banks.
By attempting to manipulate Libor, staff at Barclays were involved in “systematic dishonesty” over a period of several years. Residential and commercial mortgage customers might have lost out financially as a result.
The latest banking scandal, in another bad week for the banks, involves the mis-selling of specialist insurance called interest rate swaps. Thousands of small businesses were on the receiving end of this mis-selling from Barclays, HSBC, Lloyds and RBS.
Whilst interest rate swaps can be appropriate in a limited number of cases, it appears that the banks were failing in a number of regards.
There was lack of clarity about the costs of stopping a product, failure to check whether customers understood the risks involved and selling based on personal rewards rather than on business needs.
These are two serious but unfortunately typical examples of how the banks tend to behave towards their customers.
“Systematic dishonesty” and “selling based on personal rewards” are phrases which all banking customers should be aware. Understanding the culture and typical behaviour of the banks is the best way to protect yourself from mis-selling.
The FSA needs to do more to protect bank customers.
As things stand, they are too easy a target for bank sales staff who are dressed up as ‘advisers’ or ‘financial planners’, when in practice their purpose is to sell from a restricted range of often inferior products.
The Retail Distribution Review, when it comes into force on 31st December, will go some way towards improving standards of behaviour at the banks. Unfortunately it will not go far enough.
Already we are seeing plans from one bank to rebrand their independent financial advisers as ‘specialist financial advice managers’, as they make the move from independent to restricted advice.
There is no ‘advice’ from banks, other than advice to buy one of their products.
We hope that the FSA will be keeping a close eye on the way in which banks disclose their financial advisory services from the end of this year, stamping out any attempts to dress-up a restricted proposition as anything other than in the best interests of the bank.
Photo credit: Flickr/SlipStreamJC
