Many components of the emerging consumer protection agenda were already in place before the crisis – it is over a decade, for example, since the UK’s Financial Services Authority (FSA) launched its initiative on treating Customers Fairly. But what we have seen in the past two or three years is a major political focus on consumer protection in financial services, articulated and given weight through the framework of the G20, and progressively being translated into regulatory practice in many different jurisdictions.
There are two main drivers here. The first is the political imperative, in the face of consumer anger at and distrust of the financial services industry, to be seen to be responding. But the second is increasing evidence emerging in the fall-out from the crisis that some financial institutions have indeed proved to have been reckless of consumers’ best interests, in the increasingly desperate search to maintain their own margins and returns. Some of this was a contributory cause of the crisis – such as fraudulent mortgage loan selling in the US housing market; other examples – such as the continuing series of mis-selling scandals in the UK – were the result of lax controls, inappropriate sales and incentive schemes and a culture of profit maximization.
The upshot is that the industry seems to face swathes of new regulation, imposed and policed by new agencies, seeking a more intensive and intrusive consumer protection framework. This is not a matter of piecemeal enhancements to existing mechanisms, but of wholesale changes to comply with regulators’ future expectations. In response, therefore, banks, insurers and investment managers are urgently trying to come to terms with the details of what will be required of them and to develop appropriate compliance strategies.