The Future of Banking Commission has finally published it's long-awaited report. But will neutering a bunch of city 'fat-cats' really make any difference to your everyday banking experience?
The Future Banking Commission was formed with the view of addressing the fundamental problems that exist within the banking industry. It was chaired by Conservative MP, David Davis and included Business Secretary Vince Cable as a member.
Not only did the commission seek the views of the leading lights from the world of banking, but it also solicited the opinion of the general public. This was done through a series of ground-breaking roadshows, forums and polls.
The end result has been a comprehensive 78 page report which has put forward a number of radical proposal in the wake of the recent banking crisis. It concluded that banks should be ‘broken-up’ to help avoid future banking crisis, encourages a return to ‘old school’ banking practices and the introduction of greater measures of protection for the customer.
House of cards
Many of the commission’s recommendations are aimed at preventing and lessening the impact of the kind of the spectacular collapses witnessed during the recent financial crisis.
By taking measures, such as forcing bankers to wait ten years to cash in their bonuses, it is hoped to eradicate the practice of rewarding those who take potentially damaging short-term risks. Instead the commission has proposed that bonuses should be linked to long-term absolute shareholder value over periods of between five and ten years.
Through measures like this, it is hoped that the commissions proposed structure and regulatory regime will create a more stable and competitive banking sector in the long term. Through this it is also hoped that the liability to the tax payer will be reduced which will thus help safeguard the country’s economy in the future.
Putting the consumer first
From a consumer’s point of view, the most interesting proposals are the measures that could be enforced by a regulator who’s primary remit would be to protect the interests of you, the customer. These include:
- Making sure customers can easily switch products and accounts.
- Protect customers with overdrafts from being overcharged.
- Have ‘default’ settings on services, products and accounts which will be in the customer’s best interest.
- Allow customers the choice of ‘opting-in’ to unauthorised overdrafts.
- Prevent banks from taking advantage of existing customers.
- Put a stop to obscure charges or unfair, contract terms where these are present in financial products and services.
- Ensure full and transparent disclosure on all products.
- Give customers the power to seek compensation via a collective redress process.
- Promote bank retail depositors to rank ahead of all other creditors, including bondholders.
- The Financial Services Compensation scheme’s £50,000 limit should be placed on each branch rather than the institution to protect customer savings if the bank fails.
- Create ‘Safe Haven’ accounts to protect deposits of over £50,000.
- Ensure consumer deposit accounts clearly highlight whether or not they are covered by the Financial Services Compensation Scheme (FSCS).
- Put an end to the practice of rewarding staff for selling customers products and services that regardless of whether a customer needs them.
The start of the beginning
While this is a promising start, we should remind ourselves not to get too carried away. These are currently only recommendations and as of yet there is not even a regulatory body in place that could enforce these measures. However, the findings of the commission will make their across to 11 Downing Street and it is hoped that they could shape the coalition governments future policy on financial reform.
A full copy of the report is available to download as a PDF.
