Potential solution to financial services mis-selling raised by Bangor Academic
In a week where we have observed yet another financial services mis-selling case are there any solutions to this perennial problem of financial regulation? While the recent movement to remove commission in the sales of retail investments may assist this problem, an article published this month in the Financial Services Focus magazine, from the Chartered Accountants of England and Wales, suggests more fundamental change to how we regulate the development of financial services products is required.
In the miss-selling case this week, HSBC was fined £10.5m selling asset back investment products to assist the funding long term care costs for the elderly. Overall 74% of the policies sold were viewed to be inappropriate for the clients as the investments’ minimum term was greater than the clients’ life expectancy, inconsistent sales approaches, and a lack of attention to clients’ needs, tax circumstances and risk preferences. Despite the shocking nature of this case, with sales made to the most vulnerable of customers with an average age of almost 83, this type of mis-selling case is not rare.
A solution to this issue, according to John Ashton from Bangor University and Ian Dewing from the University of East Anglia, rests in the product development and marketing of these retail financial services. Many mis-selling cases have involved highly complex products, where customers and frequently the financial intermediaries do not fully understand what is being sold. Other mis-selling cases have involved often established financial services marketed in a highly inappropriate manner.
The article asks why do we not examine the safety and efficacy of financial services products in a systematic regulated process in a similar way in which the Medicines and Healthcare Products Regulatory Agency examines the safety and efficacy of UK health services? Within health services customer confidence of prescribed treatments is assisted by knowledge that the veracity of therapies prescribed are externally examined. Would a similar external assessment be pertinent when the financial health of customers is at stake? It is proposed that the range of roles authorised by the FSA might usefully be extended to consider those employees developing and marketing financial services. Indeed without such ‘product’ regulation are we expecting too much from financial advisers and customers?
Publication date: 4 January 2012