Cedric Stephens | Financial service regulators must do better
The Gleaner’s December 3 Editorial, ‘Banks Can Do Better’, could have been more forceful in delivering some arguments.
Other banks on both sides of the Atlantic were embroiled in scandals that affected millions of customers and tarnished the industry’s reputation by unethical actions and mistreating customers.
For example, CNN Business reported on December 22, 2022, that regulators ordered American bank Wells Fargo to pay ‘US$3.7 billion for illegal activity’. The LIBOR scandal preceded it 10 years earlier, leading to fines, lawsuits, and regulatory actions against major banks.
Are local banks immunised against similar behaviours?
Also, local and overseas banks have expanded from simply accepting deposits and money lending into acting as financial intermediaries that own and operate investment banks, mutual and pension funds, insurance companies, brokers, and agents.
National Commercial Bank and the Bank of Nova Scotia Jamaica own life and non-life insurers and agents. The Bank of Jamaica and Financial Services Commission (the latter is de facto a BOJ division) regulate financial holding companies like NCB Financial, Scotia Group, Sagicor Group, and JMMB Group.
The editorial argued that ‘the Banking Services Act is meant to provide a valuable first step in strengthening consumer protection for those who have dealings with banks and other deposit-taking institutions.’
The BOJ website says a ‘Code of Conduct on Customer-Related Matters, issued under Section 132(4)(b) of the Banking Services Act, governs bank-customer relations. The Code establishes minimum standards of good banking practice for deposit-taking institutions licensed under BSA. These institutions are commercial banks, merchant banks and building societies. The Code is not intended to provide consumer protection for users of financial products and services nor is it intended to regulate fees or vary the existing contract between the financial institution and its customers.
The critical point in the editorial is that ‘banker-customer relationships … appear broken in many parts’. The conclusion is indisputable – even NCB Financial Group boss Michael Lee-Chin publicly admitted this four months ago and about 20 years after he bought the bank.
Some of the arguments could appear to have been based on anecdotal evidence as no information was presented about the number of complaints filed against banks, even though poor service and banking have had a long history, and the central bank is mandated to publish data about customer complaints.
The combined customer base of financial institutions amounts to hundreds of thousands.
Are the poor services meted out to one group, insurance consumers, unrelated to the poor services commercial bank customers have received?
The Office of Utilities Regulation recently published the results of a survey about customers’ perceptions of the services delivered by four utility providers, namely the Jamaica Public Service Company, Digicel, National Water Commission, and Flow. The results should be obligatory reading for the BOJ and FSC regulators, banks, insurance industry executives, and other financial service providers. The survey provides reliable and objective data about how customers rate these providers’ services. It benefits consumers, the OUR, service providers and civil society.
Earlier this year, the OUR-commissioned Mystery Shopping Research Study found that utility providers scored an average of 54 per cent across all service channels (retail outlets, website chats, social-media platforms, mobile app, and call centres) in customer service. With an overall score of 54 per cent, service providers still have a considerable gap to fill to reach the target best practice of 80 per cent.
OUR sets performance standards for entities it supervises and uses the survey results, among other things, to evaluate them.
What are the reasons preventing the BOJ and the FSC from adopting these practices of the OUR? Why are financial services consumers kept in the dark about how commercial banks, merchant banks, building societies, insurance companies, brokers, and other providers perform in the delivery of services to customers? What message is being sent to society when leaders of some institutions notorious for poor customer service get national awards for their contributions to developing an industry?
A balanced scorecard (BSC) is a strategic management tool developed in 1992 that is used to identify and improve various internal business functions and their resulting external outcomes. The concept is deployed globally and was initially created for for-profit companies but was later adapted for use by non-profits and government agencies. Customers are one of the four aspects of organisations analysed when BSC is implemented.
The OUR has shown by its actions that it recognises the importance of customer service in discharging its regulatory functions. The financial services regulators have not done the same.
The editorial ended with the suggestion that the Consumer Affairs Commission should ‘cause the setting up of a commission of enquiry into current banking services’.
The central bank should not be given a pass. The BOJ must use its authority under the Banking Services Act to get the banks to improve the quality of service they provide to customers.
Similarly, the FSC should be instructed to use its regulatory powers to get insurance companies to comply with its December 31, 2022, rules or face regulatory actions. Last Friday’s interim report from the Financial Investigations Division into the Stocks and Securities Limited mess indicated, among other things, ‘criminal and regulatory breaches’.
The time for giving these institutions a ‘bly’ has passed.
If you require assistance managing risks or solving insurance problems, Cedric E. Stephens offers free counsel and advice. To obtain information and counsel, please write to The Business Editor at business@gleanerjm.com or contact Mr Stephens directly at aegis@flowja.com. Letters and e-mails will be edited for clarity and length. December 7, 2023.