Bank Charges - Test 2. Part 1.

I finished my last post "Test 1." with this:

Let's ask Lord Turner and the FSA this very simple question:

Do you believe that the charges levied by Banks on their customers were and are fair or unfair?
 
I am not quite finished with Test 1, you will see why shortly, but I want to move on to Test 2, which is:

Test 2 - Evidence that the Financial Services Authority have failed to meet the statutory obligations imposed on them by Parliament.

I also want to start to show how addressing this issue of Bank charges - by looking at the role of the FSA, not the OFT, - leads us into much murkier waters, namely those that led to the taxpayer bail out of some major Banks, and the higher taxes, cut backs, and job losses that we all now face in the UK.  That also requires us to look at the role, and effectiveness of the FSA.

To do so, I want to stay in 2007, and introduce you to Dr. Thomas F. Heurtas, who in 2007 was the Director Wholesale Firms Division at the FSA.  Today he is Banking Sector Director of the FSA, a role specifically created to enable the FSA to deliver the Tripartite authorities' initiatives to improve the regulatory architecture of the banking industry. You can read more about Dr Heurtas and his past experience here.

First let me again remind you that the FSA has statutory obligations imposed on it by Parliament, I listed the one that applies to consumers in an earlier post, but given the area I also want to look at over the banking crisis, let's see what statutory obligation the FSA were asked to meet:

There is actually not one, but two, which I believe are relevant, these:

market confidence - maintaining confidence in the financial system;


financial stability - contributing to the protection and enhancement of the UK financial system
 
Now, without me saying another word, how would YOU vote on the success of the FSA on achieving those two objectives, as you look around you today?  Are you 100% confident in the financial system?  Do YOU believe that we have financial stability?
 
As you answer those questions, perhaps you will begin to understand more fully why I am choosing to look at the role, and effectiveness of the FSA, not just on the single issue of bank charges (which let me assure you will remain the main focus of attention in this series of posts), but also looking at the FSA, and its effectiveness, from a much wider perspective.
 
Let's get to Dr Heurtas, and find what a Speech he gave on The Future of Retail Banking in the UK. might tell us.  The Speech (as highlighted) was given at The Institute of Economic Affairs' 10th Anniversary Conference.
 
That Conference took place on the 6th of June 2007.  Why do I want to emphasise that date? Well, as you read the extracts I will use and comment upon, and when as I very much urge you to do, you read the whole speech, I want to place Dr Heurtas' Speech in context.
 
Can you remember when the first queues of "depositors" started to appear outside Northern Rock? Maybe this BBC News item will remind you.  It was September 2007, just three short months since Dr Heurtas gave his speech on "The Future of Retail Banking in the UK".  They say a week is a long time in politics, looks very much like a few months is a long time in Banking!
 
I will return to that BBC News item later, to see what the FSA had to say about the solvency of Northern Rock - set against the statutory objectives that Parliament had asked the FSA to meet.
 
But first the speech.  Maybe instead of asking the FSA " Do you believe that the charges levied by Banks on their customers were and are fair or unfair? ", we can add to the comments and extracts in Test 1, by seeing what Dr Heurtas had to say about "fairness" in his speech - and yes, about Banks treating their customers fairly.
 
Extracts (and my comments) start:
 
" ... From the perspective of the regulator, the future of retail banking in the UK should have three characteristics. First, it should be fair to consumers...."
 
" ... Assuring consumer protection is one of the statutory objectives of the FSA, and this is embodied in Principle 6 for authorised firms, "A firm must pay due regard to the interests of its customers and treat them fairly," as well as in the FSA's strategic objective to help retail consumers obtain a fair deal .."
 
 
" ... Under our Treating Customers Fairly initiative we have sought to illustrate this principle in more detail. Briefly put, we have stated that firms should put treating customers fairly at the heart of what they do, that they should bear in mind the requirement to treat customers fairly at every stage of the product life cycle, from the conception of the product design, distribution, marketing, advice and, when dealing with the customer post sale, service, including the handling of  complaints, if any.
 
So far , so good, it is a clear and very powerful message.  Would you agree it should leave the Banks in no doubt about what the FSA wanted?
 
But then we also get an even fuller picture of what the FSA ask of the Banks over fairness:
 
" ... In our view, Treating Customers Fairly should result in six outcomes for consumers: ..."
 
To avoid me making this post even longer than it is, please may I invite you to go to the link above for the Speech and see for yourself what those six  outcomes were. In fact, for the purpose of this series of posts, please may I invite you to read the whole speech. 


For me, I want to draw your very specific attention to one passage, and only that one specific passage, because for me it allows me to pass Test 2.
 
Test 2:  Evidence that the Financial Services Authority have failed to meet the statutory obligations imposed on them by Parliament.
 
Remember I asked you when the first queues appeared outside the Northern Rock, and I chose to describe them, not as savers  - I chose to describe them as "depositors"?
 
The reason lies in this one passage, two short sentences from the Speech by Dr Heurtas:
 
" ... We think that the obligation to treat customers fairly extends across all products that the bank sells, including deposits.



Technically, the FSA has "switched off" Principle 6 ("Treating Customers Fairly") with respect to deposits ..."
 
I think it best if I leave those words to sink in before I move on.  There is a very big lesson to be learned, one that in drawing from the past, may allow us to alter the future. Who knows, we might even get an answer from Lord Turner and the FSA to my simple question of them.  Or do you think the fact that they have never answered that simple question suggests they have "switched off" to whether Banks treat their customers fairly - not just over Bank charges, but on a whole lot more?
 
My next post will expand on the consequences of the time when the FSA openly chose to "switch off" their statutory obligations.  You will see that it was not just switching off to "depositors" - it was to you, to Parliament, and to the country.