Sunday, July 01, 2012

Why the financial services industry can be so corrupt (and yet so smug?)

Amidst the current media fury about the Barclays Bank LIBOR fiddle and the latest miss- selling scandal to small businesses, the only thing that really astonishes me is the shock and horror about what has gone on?

Already we have excuses that this was a “one off” or “all the fault of the last government” as well as it’s just a few “rogue traders”.   Rubbish. It is not.

Does everyone forget already that we are in the worse recession for 60 years due to either fraudulent or at best reckless behaviour by Banks and financial institutions?

Barclays Bank has been ripping off its customers for years, it not for decades. Does no-one remember the Personal Pension scandal during the 1980’s and 1990’s? When Barclays (and practically all the other Banks and life assurance companies) persuaded its loyal and but completely naive customers to  come out of their guaranteed Company defined benefit pension schemes and buy their expensive personal pensions? When people wanting short term saving plans were sold 25 year life insurance endowment bonds?

When, very like the current debacle over small business interest hedges,  the Banks instructed all their retail staff that they had to make so many sales a week of these products or they were in trouble. All senior management knew exactly what was going on since it made no financial sense whatsoever for anyone to leave their company pension scheme.  But they did nothing to protect their customers nor ultimately their shareholders who had to pick up the bill for compensation. These corrupt practices are due to widespread bad company and industry wide governance.

Yet time after time, whenever I go to governance conferences and meetings, we are told how wonderful UK governance is especially compared to the rest of the world (Which is probably true but if so, then God help the rest of the world). When sensible proposals are made to improve corporate behaviour and governance such as the compulsory publication of Company AGM voting by fund managers or putting employee representatives on remuneration committees then they are too often simply dismissed - often sneeringly.  

This frankly smug and self satisfied attitude has change.  The UK financial services is very, very important to the UK economy. We can argue that maybe it is too important which is another matter. But at the moment it is responsible for 10% of our tax take, employs hundreds of thousands of workers and is the main source of finance for our economy.

While there is some very good people work in finance there is not enough of them to stop us, the principles who own assets (such shareholders in pension and insurance funds) being robbed off by the agents, we employ to look after our assts. 
Cosy crony remuneration committees must stop. Shareholder votes on pay at company AGM’s should be binding and compulsory. Retail and investment banks should be separated to stop casino capitalism.  The Government should retain a significant shareholding in the Banks we own at the moment and we should buy shares in those we do not own.  Better regulation is not enough we need a state holding not to run the Banks but to try and make sure that they are run by grownups who will act in the long term interests of shareholders and customers not the selfish short termism driven by Bollinger Champagne dudes.
The massive life insurance funds and Mastertrust pension schemes which have no beneficiary governance at all should have a trustee structure set up to ensure that they are not being robbed either.  Doing so would help put UK PLC in order as well. 

Finally fraudsters should be brought to book and locked up as well as those higher up who turn a blind eye to matters in order to ensure their own well paid positions and bonuses. Anyone making a deception in order to gain a pecuniary advantage is guilty of a serious criminal offence while aiding and abetting any criminal offence is a crime as well.  These people must be dealt with in the same way we treat rioters.

Rant over. Hat tip great cartoon by Steve Bell from The Guardian
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