We’re just through the first quarter and 2012 is shaping up to be yet another torrid one for the beleaguered financial services sector. With the next bonus season some time off, there will at least be temporary respite for the bashed bankers. But the court of public and political opinion is still baying for blood and the next furore is surely just a matter of time. Here’s look at some of the key trends setting the agenda in financial services for the rest of the year and ask how likely they are to become PR flashpoints.
Cap on charitable giving
While the not-for-profit sector reacts furiously to George Osborne‘s ‘charity tax’, the financial services industry is also playing a vocal role in the debate. Wealth planners and accountants have naturally been more balanced than their counterparts who rely on donations for their existence but it’s still a struggle to find anybody publicly backing the policy. Wealth planners are clear in their view that philanthropists would have much less incentive to give large amounts to charity. The vision of a ‘big society’ delivered by the voluntary and third sectors, while philanthropists fill the funding gap created by cuts, is today looking bleaker and more confused than ever.
Furore factor (out of five): five
After the government’s intervention on Stephen Hester’s bonus, we now know for certain that the coalition will not shy away from blatant opportunism if it prevents the Opposition from outflanking them in the court of mob justice. Moreover, the stripping of Fred Goodwin’s knighthood underlines that the government finds its populist urges irresistible.
As investors force Barclays to set tougher bonus conditions, it is hard to see anything other than another huge storm when the next round of bonuses are announced. Come the next round of bonuses and results, it is hard to see anything other than another huge storm.
Furore factor: five
PPI and customer dissatisfaction
March’s positive report from the FSA showing that overall grievances about consumer financial products were at their lowest level for five years was drowned out by news of a 21 per cent surge in PPI complaints. So while the banksmay be making progress in reducing customer dissatisfaction, the current climate is such that a whiff of rising complaints in any given area will grab the headlines. The recently announced Ministry of Justice investigation into PPI claims management companies is unlikely to help banks for some time yet.
Furore factor: four
The financial services bill
January’s announcement of the biggest overhaul in financial services regulation in a decade is set to codify greater protection for consumers and sets the tone for greater state intervention. The draft bill makes it clear that if taxpayer funds are at risk in a crisis, the chancellor has the power to act. It creates several new bodies, including a Financial Conduct Authority (FCA) to look after markets and consumer interests, but which will also have a mandate “to promote effective competition in financial services in the interests of consumers”.
George Osborne believes the bill will be enough to avoid the “paralysis and confusion” that did so much damage after the financial crisis. But many industry commentators are not convinced. In particular, concerns have been raised over a weak corporate governance structure for the Bank of England, which will be given unprecedented powers. The legislation has several stages to go through this year, offering plenty of opportunities to enter the news cycle.
Furore factor: three
Price comparison websites
The level of scrutiny of the online price comparison market is being ratcheted up, causing some concern for operators. Although no formal investigation has been announced as yet, the FSA signalled its intent to take a more activist approach when it shut down Argos’ price comparison site earlier this year. And last month the influential consumer watchdog Which? called for regulation of the market on the grounds that the information they providecan be unfair or unclear.
The FSA, which published new guidelines for insurance comparison sites in October, has publicly acknowledged Which?’s concerns as echoing some of its own views. For the time being, the regulator maintains a brief of “ongoing supervision" but expect to hear more about intervention in the market to protect consumers.
Furore factor: three
Together with the financial services bill, the government’s other policy priority is to lay the foundations for the Vickers’ reforms, which Mr Osborne has signalled he intends to implement in full. The impact on banks will be nothing less than seismic. The key reforms include significantly higher equity ratio cushions, ‘ring-fence’ separation between investment and retail banking, greater transparency, and assistance to help customers change banking providers. All these measures will be onerous but after several bruising encounters, does the industry really have the stomach to fight a government that knows it has public opinion on its side?
Furore factor: three
Crackdown on structured products
In a recent interview with the Financial Times, Martin Wheatley, chief executive designate of the FCA – one of three bodies to succeed the FSA next year – said his watchdog will be given powers to protect consumer investors by banning retail products.
Advisers will have to think very carefully about the way they design and sell structured products, particularly in light of the FSA’s recently published final guidance. The regulator expressed its concerns about the impact of structured products’ increased use and warned of the mounting risk of poorly designed products and misspelling/misbuying by consumers.
Given the almighty kicking the regulator has dished out to the banks in the PPI misspelling scandal, they would do well to heed Mr. Wheatley’s warning before it is too late.
Furore factor: two