He said:
"The present position is far removed from the ideal. We have a financial product which is likely always to be complex. We have at present a customer who is too often not equipped to understand financial products, and whose judgement is therefore unreliable. And we have sales forces which too often have acted irresponsibly – and where that behaviour has historically been encouraged rather than discouraged by the incentives which their managers have used. Now each of these problems need tackling – the complexity of financial products via the FSA's work on devising and implementing standard templates which will simplify comparison; customer lack of confidence or competence through the work needed – a task which will extend over a generation rather than a single year – to improve financial understanding.
"Banks, and other financial institutions with retail businesses, can clearly contribute to both these sets of solutions. But they can, and must, take the principal responsibility to ensure that their sales forces sell financial products and services in a responsible manner through paying full and careful attention to ensuring that:
- inappropriate products are not sold;
- the basic requirements of understanding the customer's position and needs are met;
- internal controls to police these principles are in place and are operated; and
- the incentives for salesmen and women reward responsible behaviour.
"That is the central responsibility of the senior management. I stress this, because it is clear that, more often than should occur, this has not happened. These occurrences of failure to meet a basic standard are bad for the reputation of the financial services industry as a whole; and cause harm to consumers. They are unacceptable."
Callum McCarthy said the FSA could not prevent behaviour of this sort - that is down to the management of the firms themselves.
"But what we can do, and what you must expect us to do, is to seek ways of rewarding those firms which behave responsibly, and of making it increasingly costly for those who do not. We will therefore place a new emphasis when supervising and regulating banks on the way in which they treat their customers when providing financial services regulated by the FSA. And, when companies fail to meet their obligations, we shall use our enforcement powers actively."
