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How can the financial services industry regain your trust?

Laura Miller
Written By:
Laura Miller
Posted:
Updated:
03/05/2013

Trust and trustworthiness are crucial to any exchange relationship. So, after a range of scandals, how does the financial services industry rebuild faith in what it does?

Trust, once lost, is notoriously hard to regain. The 2008 financial crisis, bankers’ bonuses, the payment protection insurance scandal, and Libor rigging are just a handful of the negative stories that have eaten away at the reputation of financial services.

So what can the industry do to rebuild itself in clients’ eyes?

Trust could be rebuilt if consumers knew who was “on their side” and who was acting in their best interests.

The separation of sales from advice, as implemented by the Retail Distribution Review (RDR), can be seen as a positive step in the right direction.

But what else is needed?

Financial services will never rebuild trust with consumers or affect a change in the sector unless custodial sentences are imposed on those guilty of criminal wrongdoing, according to Chuka Umunna, shadow business secretary.

Labour’s Umunna said for the City to continue to perform its functions as a global financial hub and provider of finance to the real UK economy, it must be seen to punish those who do wrong, giving the example of the LIBOR rate rigging scandal as one area where he would like to see prosecutions.

“It cannot be right that someone who seeks to cheat the benefits system out of a couple of hundred pounds in my constituency may well be thrown into jail for doing so, but those who seek to rig the financial system and receive hundreds of thousands of pounds as a result never seem to suffer the same fate.

“Is not the prospect of jail for gross wrongdoing one of the best ways we can affect a culture change?” he said.


Supervision and regulation cannot act as a substitute for trust, he added.
“You cannot regulate or legislate for being trustworthy. If the sector is to recover trust, it needs to be seen to very visibly be getting its own house in order.”

He called on the financial sector to come together to create a public summit of the key industry leaders where action points for improving the sector can be agreed and then implemented.

Personal liability

Saker Nusseibeh, Hermes’ chief executive, also believes personal accountability is the way to restore trust.

He wants people who engage in risky activities in the sector to be forced to take on unlimited personal liability as a deterrent to bad practice.

“The system fails to provide personal accountability. Put people who engage in risky activities in unlimited personal liability partnerships. It will create a much better deterrent than regulation,” he said.

Better application of current legislation and regulation is the route favoured over more regulation.

Too much regulation – instead of instilling greater trust in the financial services industry – can have the opposite effect, according to Richard Sexton, reputation and policy director at PricewaterhouseCoopers (PwC).

Sexton warned against what he called the “seductive” creation of more rules in the wake of the 2008 financial crisis, and of relying too much on regulation as a means to solve the problems in the sector.

“Regulation alone will never close the gap between fine words and good actions. Too much regulation, or too much reliance on regulation, can perversely undermine trust,” he said.

He called on banks to have “clarity” about what their purpose is within society, and advocated a buyer-seller relationship between consumers and financial institutions, where both groups communicate their expectations of each other.

“Shareholder value needs to become stakeholder value. We need to measure purpose and embed it in processes that financial institutions then follow,” said Sexton.

Serve the customer

Christine Farnish, chairman of the rights group Consumer Focus, also wants more attention on the end customer from financial services.

“Present products in a way that is understandable to them.

“It’s got to be clear, simple and accessible, not in jargon. Doing something about the way products are presented to people is very, very important,” she said.

So the experts’ view is that personal accountability and consumer focus can mean avoiding more red tape, while still rebuilding trust.

And increased trust would lead to increased consumer engagement in financial services, which, ultimately, will lead to a larger market. Something everyone in the sector will benefit from.

 Four key ways to restore trust in financial services

1 Increase prosecutions of those guilty of criminal offences.
2 Improve personal accountability of those working in the sector.
3 Present products and services in a jargon-free way.
4 Make consumers the focus of everything the sector does.