Misdemeanor, cost of conduct and those poppies

RBS announced that it has set aside a further £780m to cover the costs of conduct issues, including the PPI miss-selling scandal.

The news, released alongside its third-quarter results, showed that the bank’s recovery continues despite the ‘misdemeanour’ provisions for past mistakes.

The latest figures from the FCA show that fines levied during 2014 to date are a staggering £313,025,800 with most being collected from banks.

We have seen ‘misdemeanour’ payments and provisions for PPI, currency dealing, LIBOR rate fixing, money laundering, sanction breaches and trading scandals.

And it is always banks!

The top 10 reads like a list of the great and the good with HSBC at the top with a staggering $1.9bn fine for ‘money laundering ‘lapses’.

But the reality of the situation is that banks today are too big to fail, possibly because of ‘customer detriment’ fallout. Can you imagine your high street without a branch of……..well where do you start?

We worry about the restoration of trust in the financial services industry, wringing our hands with the regulator and consumer groups in the search of a way back to trust.

Sir David Walker, the outgoing chairman of Barclays said in late October that big fines on banks were making it harder for the industry to win back public trust and suggested fines were being levied for activities that in the past might have been regarded as acceptable.

Walker said regulators “cannot and should not try to regulate culture” and he may have a point. The FCA is certainly trying to regulate morality, a character trait sadly lacking in some quarters I would venture?

A point to consider going forward could be that the fines are aimed at the perpetrators on an individual basis and restitution a corporate and personal payment. Corporate fines mean nothing at all really. A bit of fiscal naming and shaming followed by a ‘get over it and move on’ attitude. The jailing of low-level offenders to set an example seems to not have done the trick at all when it happens, as that is very rare indeed.

The fact that only one top banker has been jailed for the financial crisis says it all.

Prosecution of white-collar crime, as it is sometimes referred to as, has seen some interesting MI over the last 20 years.

For example in the US, from the various loan scandals of the 1980’s, we saw 890 people convicted and jailed. The recent financial crisis has seen just one.

Says it all really.

On the subject of fines, that were supposed to be used to reduce the regulatory burden on firms that did do the right thing, we hear that part of this weeks banks £2bn Libor rate rigging fines will be used to fund a tour of the Tower of London poppies across the UK until 2018. George Osborne announced that £500,000 would be used “to ensure that people across the country will be able to see this moving tribute over the next four years”. 

All very laudible, but I think it is time for a rethink on how fines are levied, who actually pays them and how they are used. Right now fines are treated as a windfall revenue source to distribute on a political whim for whatever cause is popular with the voting masses.

Osborne said “It’s only right that fines from those who have demonstrated the very worse of values should go to support those who have shown the best of British values.” 

But fines should not be used as a political slush fund to ‘big up’ a government, any government especially in a lead in to an election.

Covering up the military loss of life and limb with a blanket of banking ‘misdemeanours’ demonstrates the very worst of politicians behavioural values, especially from recent administrations of varying hues (who have placed UK troops in harms way with little or no thought for their safety, wellbeing or exit strategy) and is just not on.

The Tower poppies represent a life lost, not a political or regulatory opportunity to look good.


Setting the record straight

As a specialist annuity provider, Just Retirement has had a turbulent time since George Osborne decided to thrown a “hand grenade” at the pensions industry, as Steve Martell, the group’s Director – Development, Intermediary Sales describes it.

Yet with hindsight, Martell believes the freedom of choice now offered to the at-retirement market has done the provider a favour in simply accelerating its growth and product development plans, yet he concedes it’s shock factor.

“Ironically it has probably helped our product development capability because it has just accelerated the plans we already had underway, but we perhaps may not have wanted it quite so quickly.”

Martell believes providers will tend towards a blended product offering, but is confident that secure income providers expanding into the drawdown space will be a far easier challenge than the reverse situation.

“We think we can play in that market.  The challenge will be far easier for a secure income provider with their intellectual capital to bolt on a drawdown offering, but how does a provider of drawdown suddenly create the ability to deliver secure income?”

However the real fallout of March’s Budget announcements and the devil of detail, as revealed this month, will take effect from April and potentially six months after that to really show its impact, he says.

While the provider is responding with new product types, for those not fortunate enough to have access to a financial adviser or some form of financial intermediary or guidance, he does liken the newfound pensions freedom to a ‘loaded gun’.

“It’s slightly disturbing if, as we heard recently, that pensions are now comparable to ‘bank accounts’ because that’s like handing someone a loaded gun and putting their finger on the trigger and saying fire it whenever you like. If they have advice then fair enough, but if they don’t…” he warns.

In-depth consumer research carried out by Just Retirement recently suggested four key themes characterised people’s retirement solution needs: accessing their solutions in a ‘one-stop shop’; having at least some degree of secure lifetime income – even for the wealthy; the ability to dip into their savings at some point in the future; and stable, steady investment outcomes.

With this in mind, while the higher value savers may be well looked after by advisers, Martell spies a huge opportunity for the mass market – those with lower pots of £100,000 or less – suggesting some form of “advice factory” may become more commonplace.

“Although no one seems to have worked out how to do that yet,” he says.

Befuddled by the fall in pension savers exercising the open market option – especially given their newfound freedom, Martell says the mandatory pensions passport concept would be welcome.

“The industry needs to break the dominance of the holding providers. Yet so much has happened so quickly, it will require a lot of intervention. We had a business model that was predicated on organic growth and we’ve had a hand grenade thrown in to precisely where our growth will come from.”

While Just Retirement’s strategy looks set to embrace the more flexible landscape, suggesting it is no longer black and white in terms of the types of solutions offered by any one provider, annuities still hold relevance, he insists.

“If you understand the financial consequence of waiting, then that is fine. If you don’t, the common sense approach is that if you definitely need secure income you should take out an annuity because you will only end up buying the same thing in a year’s time anyway, when yields could be even lower.

 Sam Shaw