Examination of Witnesses (Questions 328-339)
MR GERARD
LEMOS AND
MR SEYMOUR
FORTESCUE
14 MARCH 2006
Q328 Chairman: Gentlemen, good morning
and welcome to this inquiry into financial inclusion. Would you
introduce yourselves for the record?
Mr Lemos: Gerard Lemos, Chairman
of the Banking Code Standards Board.
Mr Fortescue: Seymour Fortescue,
Chief Executive of the Banking Code Standards Board.
Q329 Chairman: Good morning and welcome
again. For the benefit of new members of our Committee, could
you briefly give us some background information about the Banking
Code Standards Board and the Banking Code? We have had quite a
long and fruitful relationship, but there are other members of
the Committee who would like to be filled in.
Mr Fortescue: Chairman, there
has been a Banking Code in existence since 1991; the present one
is the seventh. The Banking Code Standards Board itself has been
in existence since 1999, so we are about six and a half years'
old. The Banking Code covers current accounts, savings, personal
loans, credit cards, ATMs and sets minimum standards which banks,
building societies and credit card issuers in the UK must meet.
The Code is widely regarded as a strong Code of Practice and we
believe that we monitor and enforce it rigorously. Virtually the
whole industry now subscribes. I am pleased to tell you that Marks
& Spencer joined only a day or two ago, so we now have all
major banks, building societies and credit card issuers. We are
funded by the industry but independent of it, in the sense that
seven of our 10 directors represent the public interest, and only
three represent the industry.
Q330 Chairman: What parts of the
industry do those three represent?
Mr Fortescue: They are the chief
executives of the three major trade associations—the British
Bankers' Association, the Building Societies Association and APACS.
Q331 Chairman: What role is there
for the Banking Code Standards Board and the Banking Code in promoting
financial inclusion?
Mr Fortescue: Chairman, I think
the Banking Code is principally to do with the treatment of customers
after they have opened their accounts, but the most important
element of the Banking Code in relation to financial inclusion
is what the Code says about basic bank accounts: "Before
you become a customer, we will: [this is the banks] assess whether
your needs are suited to a basic bank account (if we offer one)
and if they are we will offer you this product; [and, secondly,
we will] offer you a basic bank account if you specifically ask
and meet the qualifying conditions for one". Perhaps I should
mention that we have monitored and enforced those elements of
the Code in relation to basic bank accounts.
Q332 Chairman: Could you tell us
how you monitor compliance?
Mr Fortescue: Yes, but could I
just mention that there are other sections of the Code which are
relevant to financial inclusion, in particular the treatment of
customers in financial difficulties, credit assessment and branch
closure. Chairman, you asked how we go about our monitoring: we
have done four major mystery shopping surveys of basic bank accounts,
1,273 mystery shops in total, and we have done it over the past
four years. We have used our own staff and also we have used the
market research agency NOP. In most cases we have actually gone
through with opening the accounts. We have seen steady improvement
in the performance of the banks that offer basic bank accounts
over those four years. We have a traffic light system whereby
we grade the performance of the individual banks. There are, incidentally,
15 banks and one building society offering basic bank accounts.
In the mystery shopping exercise we did in 2005 we graded five
of them amber and 11 green; so that was a significant improvement
over the previous years although there is still scope for further
improvement.
Q333 Chairman: Consumer groups have
noted that, because you do not publish the results of your mystery
shopping for each individual bank, it only provides what we suggest
is a weak incentive for banks to improve their practices. Will
you consider providing a full record of the results of your surveys
showing the performance of individual banks to this Committee?
Mr Fortescue: Chairman, we are
not a market research organisation. Our job is to monitor and
enforce compliance with the Code.
Q334 Chairman: Let me interrupt you
there. We are an organisation which scrutinises the work that
you and others are doing and, in order to promote financial inclusion,
we need hard facts. When we hear that Bank A is good, Bank B is
never any good and Bank C is not so good that is totally and utterly
useless to us because it does not tell us anything. In fact given
the situation that could retard the issue of financial inclusion
because it gives no incentives to banks to pit themselves against
the best. That is the situation we are in.
Mr Lemos: The situation on this
is that we have rules for compliance and disciplinary matters
which are human rights compliant. If we were to publish the data
from the mystery shopping that would, in effect, be to name and
shame the poor performers which might be beneficial from your
perspective, but the problem for us would be that it would be
a breach of our rules.
Q335 Chairman: Are you trying to
tell me that this is against the banks' human rights for them
to be named? Let me tell you, they are not shy at putting their
adverts forward as to how good they are against others. Yet when
we find they are a wee bit slow on things, you are saying those
are their human rights? This is nonsense and I am not a lawyer,
and you probably are a lawyer!
Mr Lemos: No, I am not, but we
were advised by our lawyers.
Q336 Chairman: Could you give us
that in writing from your lawyers? Could you send that information
to us as to where it contravenes their human rights?
Mr Lemos: Let me be clear, Chairman—
Q337 Chairman: I want to be clear—that
is why I am pushing you.
Mr Lemos: The requirement of our
disciplinary process, as I think is the case for all regulators
including the FSA, is that they are compliant with human rights
and other legislation. Our disciplinary process has as a sanction
that we would name and shame people who did not comply but it
would come at the end of a disciplinary process, a disciplinary
hearing and people would have the right of appeal; if the information
was published in advance that would second-guess the process.
Q338 Chairman: Mystery shoppers have
been into a bank and have gone for a basic bank account. In some
banks 62% of customers who went in had to go to the counter to
get information. That is not shaming, that is naming. That is
ensuring that people who are signing up to a basic bank account
get the proper treatment when they go into a bank. That is not
shaming.
Mr Lemos: We are also committed
to people getting the proper treatment. The way in which we seek
to achieve that is, once we have the results of mystery shopping,
there is a programme of compliance activity which, over the three
or four years we have been doing this, has led to an improved
performance, particularly in the availability of information and
behaviour of staff. I would not deny for a moment (and it is not
my job to defend the banks in this respect) that there are still
problems with those two requirements. Our job I think is to seek
to get banks to comply with those requirements. What we want to
achieve is that all banks that are members of the Banking Code
fulfil the requirements of the Code.
Q339 Chairman: Let me give you one
bit of information that you have given to us in your mystery shopping
survey. You have said that "one bank correctly identified
the need for a basic bank account in only 37% of cases, lower
than in our previous survey when the poorest performer in this
area . . . achieved 45%". So here we see regression and if
people want to open a basic bank account, or advisers say they
should go to a particular type of bank, they are not going to
get a good deal at that bank because they have gone backwards,
but nobody has that information and that is totally unsatisfactory.
Mr Lemos: But the way in which
we would want to deal with that, Chairman, is to ensure that that
bank, along with all the others, got those numbers up.
| 
