FCA: Interest only concerns to be tackled early
In his speech at the Mansion House Wheatley will also be discussing fairness, the importance of looking forward and cultural reform as the key to preventing future crises.
“It is sobering to reflect on how far and fast the financial world has moved on over the last five years,” he will say.
“From the inside looking out, what we have now is a financial environment better able to calibrate risk and manage it. Multiple lessons have been learnt and applied. In a technical sense at least – we have moved things forward for the better.
“But I also want to make the point that there is no room for complacency. Poor conduct is still a daily staple of the news – most recently in the wholesale markets. And until this flow of headlines slows, until the change is real and manifest, it will prove difficult to deliver confidence.
“For me, there are two key challenges in moving things forward. Number one: to look ahead more effectively so you prevent crisis. Number two, to respond to the changing world around us with cultural reform of our own.
“Much of the criticism of the regulator in the past – which we are now working to untangle – has been around the frustrations of retrospective action versus early warning, talking over listening to, and inconsistency over predictability.
“And this is why we now see more issues like interest only mortgages tackled by the regulator early, rather than dealt with retrospectively.
“It also means being open and transparent on the back book of cases we are still handling. Once again, we come back to that word ‘fairness’. In too many cases, the first injustice is compounded by a second of failing to deal with the problem adequately.
“So, in key cases like interest rate swap mis-selling, the initial ‘unfairness’ – the sale of a complex hedging product to consumers who did not understand the downside risks; who cannot extricate themselves from the agreement; and who cannot refinance – is too often aggravated by the response of financial services.
“In a situation where many small employers who took out these products may be struggling to make ends meet – the industry is deceiving itself if it imagines that a total of 32 offers accepted, totalling £2m , is adequate progress.
“A very good option in what is now a very fluid situation is to follow the positive lead set by some banks, by paying compensation in separate stages: effectively fast tracking compensation payments.
“I do think the financial world is getting its act together. People want to know whether progress is uniform? Whether we can we prevent all financial shocks? Are the efforts of banks and financial services genuine? Are we going to get a fairer deal in the future? Will there be more set-backs? Is the regulatory system genuinely reformed?
“To which my answers would be: not yet, no, probably, I think so, yes, and absolutely.”