Financial services - Consumers’ needs must come first

WE have all heard of friends, neighbours or relatives who have lost substantial sums because of the stock markets’ collapse. Anyone involved in a private-sector pension scheme has had to revise their expectations downwards to reflect the failure of our financial system and our financiers.

The fall in bank shares, once thought conservative, bullet-proof investments, has hit many individuals badly. Especially badly hit are those who invested their life’s savings and planned to rely on income generated by these shares in their retirement.

And it gets worse.

Yesterday’s report from the Financial Services Ombudsman (FSO) suggests that we need to be more vigilant than ever when dealing with the financial services sector and that we can no longer trust banks or service providers as we, or they, would wish.

Not only must we keep an eye on the vagaries of the market but we must look over our shoulder at the sharp-suited “investment advisors” trying to sell us a plethora of indecipherable financial products. Light-touch regulation has meant that far too many consumers, especially older people, have been exposed to unacceptable practices. Not to put too fine a tooth in it, too many unprincipled, self-serving chancers have been let loose in the sector with inevitable consequences.

This has been reflected in the “sharp rise” in complaints to the FSO linked to the “alleged mis-selling of investment products” by banks and other financial service operators.

Ombudsman Joe Meade received some 3,900 complaints in the first six months of 2009, a 44% increase on the 2,700 recorded for the same period last year.

This may reflect a new and welcome assertiveness on the part of consumers but it is a very, very substantial number of complaints for such a small country over such a short period. If even half of them are upheld it represents a considerable breach of trust between a sector dependent on trust and its clients.

Mr Meade reported that in the majority of cases people claimed they had not been fully advised of the risks involved in the investment opportunities offered.

In some instances the FSO ordered institutions to fully reimburse investors who had been mistreated if not plainly misled. How much more effective it would be if that office could impose substantial fines or, in extreme cases, revoke trading licences. As ever our reluctance to confront white collar crime, or even sharp practice, leaves a lot to be desired and betrays a lack of confidence that does us all a great disservice.

There are indications that the long-anticipated An Bord Snip Nua report will suggest that some of our consumer champions — the ombudsmen for various sectors — might be amalgamated.

By all means streamline processes and introduce efficiencies but if one of the consequences of that is that even lighter regulation will be applied in this or other sectors, only one set of interests will be served and they are not the consumers.