Thursday January 3, 2013
Thursday January 3, 2013
2012 ended with a bang... but not in a good way. Coming just weeks after the conclusion of the Adoboli case, the UBS fine for LIBOR-rigging thrust the issue of culture in banking back onto the front pages. And the details of UBS were even more alarming than the Barclays case from earlier in the year: at least 45 individuals were found to be implicated in rate rigging, and the UK FSA found “at least 2,000” written requests for inappropriate LIBOR submissions, which were often discussed quite openly in chat forums or group emails.
With RBS set to be the next high profile case in the LIBOR scandal (and several other big banks to follow) the issue looks set to rumble on well into 2013, and it has already helped to re-ignite the debate around the separation of banks’ retail and investment functions.
It's hardly surprising, then, that many are predicting 2013 will be a tough year for the big banks. With new legislation due in September reducing the time required for customers to switch accounts from 31 to 7 days, a recent YouGov poll suggested that 14 million people in the UK could move away from the "big five" in the coming year.
It’s easy to see where such predictions are coming from. Still, might things play out differently in practice?
First, although campaign group Move Your Money reports that 500,000 individuals switched their accounts in the first half of 2012 alone, some might argue that these early movers represent a “hardcore” of individuals, more prepared to “vote with their wallets”. Others, while disgruntled, may nevertheless stick with their existing arrangements, while some may be simply unaware of their options. Consumer awareness, as well as satisfaction, may be a key factor.
Further, even if account holders do feel minded to switch, some might suggest that a wider range of factors comes into play when considering a switch, beyond simply the time it takes to do so. Among those, access is one consideration: despite the rise of internet banking many still value the presence of a branch network. Confidence in the alternative is another. Indeed, despite public vilification of the banks since the financial crisis, the banks have proved remarkably resilient and appear to have largely retained their customer bases. Understanding this “stickiness” is no simple task. Nevertheless, with such issues in mind, could players such as Tescobank - with its existing retail expertise, brand value and customer base - be poised to take a big chunk of high street banks’ business?
I would be interested to hear what you think? Does the LIBOR scandal represent a tipping point in the public’s perception of the large financial institutions? Is it the “last straw” that will inspire a mass exodus from high street banking (aided by the availability of 7-day switching)? Will historically low levels of consumer satisfaction contribute towards that exodus (the FSA reported that complaints against the big banks were up 59% in the first half of 2012)? Or can the big banks find a way to retain retail business by restoring customer confidence and trust (and, if so, what role might compliance have to play in that process)?
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