Tuesday, November 22, 2011

'...Father, forgive them.....'

A blog examining the organised criminal nature of the High Street Banking Industry.

When criminologists measure criminal threats to society, one of the criteria evaluated is the volume of loss (or financial damage) such criminality generates. So, we can get statistics about the value of goods stolen from shops, or the value of quantities of drugs seized, because obviously, if a particular activity is causing severe financial loss to the country, then it ought to be taken more seriously, and hopefully, escalated in the threat-value recognition.

When a specific group of individuals or practitioners repeatedly appears in the statistics of criminal activity, as being responsible for the egregious activities identified, the Government and the Home Office encourage the agencies of control to target these people and focus investigative and prosecutorial attention on them.

We tend to call this kind of activity, 'Organised Crime' and it is defined by the UN, among other agencies thus... "... large scale and comples criminal activity carried on by groups of persons, however loosely or tightly organized, for the enrichment of those participating and at the expense of the community and its members. It is frequently accomplished through ruthless disregard of any law...'

Paul Nesbitt (head of Interpol's Organized Crime Group) defined it in 1993 as, "Any group having a corporate structure whose primary objective is to obtain money through illegal activities, often surviving on fear and corruption."

We are living in what I think is now generally agreed to be the worst period of financial constraint since the Great Depression, and every man, woman and child in this country is having to make do with less and less. The Government is telling us at every opportunity that we must get used to making do with fewer social supports, while at the same time, saying that it is trying to help the economy by engaging in Quantitative Easing (printing more money to you and me) in order to get growth started again.

Ordinary savers have found that their savings' rates have dwindled to virtually nothing, and many people are looking to find advice on how to get the best from their limited reserves of money.

So, why is it that at the very time when people need good financial advice most, the British High Street retail Banks appear to be completely immune to this need, and carry on their business as if their clients are merely there to be fleeced?

For many years, it has been one of the great mantras of the financial services industry that the institutions are looking to acquire 'as big a share of the customer's wallet' as possible. This phrase was widely bandied about in the banking industry by executives who used to come to seminars put on by a leading computer manufacturer, and they looked to the IT industry to help them develop software that would do just that, 'get a bigger share of their customers' wallets', and a great deal of time and energy was spent encouraging the development of technologies which would help banks 'up-sell and cross-sell'.

We have had to go through a financial services revolution in this country to get financial institutions to grudgingly subscribe to a theory of 'best advice' for their clients. The regulator has had to issue meaningful warnings about 'treating clients fairly', (an issue you might have been forgiven for thinking was a 'given'). So why is it, after all this time, that so many of the banks and their financial friends are still behaving like a bunch of highway robbers, cheating and stealing their clients blind. Some recent cases are instructive.

Two Barclays bank employees were sentenced to five years imprisonment following their roles in £1.3 million worth of fraud on old age pensioners. Karl Edwards, 44 and Andrew Waters, 26 appeared at Birmingham Crown Court on November 18th 2011, following the fraudulent activities, they received five years each. The court heard that the bankers targeted three victims who were all over the age of 80. Karl Edwards was thought to be a "premier relations manager" whilst employed at Barclays.

In July this year, Another ex-Barclays employee was jailed after he stole more than £600,000 from dead, elderly and ill customers, to fund his online gambling addiction. James Leonard Finnigan, 42, from Twickenham, Middlesex received a four-year jail term at the Old Bailey, having previously pleaded guilty to the fraud. A police spokesman commented: “James Finnigan appeared to target customers who were elderly in the hope of avoiding detection, in some cases going as far as taking money from accounts when customers had recently died.”

How about a greedy bank manager who was given a hefty bonus payment - at the same time as he was robbing customers of tens of thousands of pounds. Liam Allmand was so highly thought of by Barclays Bank for looking after their higher-earning clients that he was rewarded with a £20,000 bonus on top of his salary. But unbeknown to the bank, for two-and-a-half years customer relationship manager Allmand, 27, had been rifling the accounts of his portfolio of 300 wealthy customers.

Former customer relationship manager Liam Allmand was jailed for four-and-a-half years in February 2011, after stealing more than £45,000 from wealthy Barclays Bank customers. He said he was so "clever" even the bank's sophisticated security system took two-and-a-half years to spot his thieving.

These cases were straightforward criminal activities, and although it is tempting to ask why Barclays' so-called sophisticated internal financial crime prevention systems did not identify these activities earlier, the most likely truthful answer will be 'what sophisticated internal systems'?

But what about more inchoate dishonesty, what about the way you treat your clients? If you are behaving in an honest and proper manner with your clients, why would they complain about you? What is it about the High Street retail banking industry that means when you join, you leave your morals, your honesty and your integrity in a pile on the doorstep?

Perhaps it has something to do with the culture of the institution which is being joined!

The consumer magazine 'Which' has just published a report on bank selling practices, which makes for compelling reading.

High street banks are offering poor investment advice and recommending inappropriate financial products to consumers, according to an undercover investigation. Which? sent nine researchers - all aged above 60 and posing as retired savers inexperienced at investing - to get financial advice at bank and building society branches across the UK. The study found that 32 out of 37 advisers made misleading statements about available investment products and appeared not to have a good understanding of the financial risks involved.

Many of the bank employees recommended complicated financial products, and which incur hefty fees to pull money out in the short term, which are considered inappropriate for the average investor near retirement age. Even though financial institutions earn commission on the products they recommend, nearly half of the advisers said there was no cost for their advice.

One of the undercover researchers was told by an employee at Yorkshire Bank, a subsidiary of Clydesdale Bank, to invest £50,000 in a bond without disclosing that this would net the bank £4,400 in commission. Earlier in the year, two of Britain's biggest banks, Barclays and RBS, were reprimanded for mis-selling financial products. Barclays Bank is the most complained-about financial services company in the UK, according to figures released in late November 2011. The bank's customers lodged 8,283 complaints with the Financial Ombudsman Service (FOS) from 1 January to 30 June, of which 5,226 were about banking and credit services and 2,085 about insurance cases.

More than two-thirds (71%) were upheld in the complainant's favour – 67% of the banking and credit complaints and 93% of the insurance complaints, most of which related to payment-protection insurance policies. The data covers a total of 69,841 complaints handled by the FOS in the first half of the year. Of the 100,000 businesses under its remit, 142 accounted for 87% of all complaints.

Banks topped the table, with five groups each receiving more than 3,000 complaints and together accounting for 38,286 cases. Lloyds TSB was the subject of 6,947 complaints, Bank of Scotland 5,804, Abbey 2,493, NatWest 2,379, MBNA 2,298, HSBC 2,177, Royal Bank of Scotland 1,812, Alliance and Leicester 1,786 and Nationwide Building Society 1,149. The FOS was deluged with complaints about unauthorised overdraft charges in 2007 and 2008, when it came to investments and pensions, 63% of complaints were about sales and advice, but a spokesman said the latest complaints focused on other aspects of banking services and charges, most notably PPI mis-selling.

Indeed, PPI issues made up 51% of all complaints to the FOS, of which 75% of those complaints were about selling practices and advice. Remember, when reading what follows, please recall that the PPI scandal was determined to be a wholesale engagement in what is euphemistically called 'mis-selling', which is a misleading way of saying ' wholesale, institutionalised fraud.'

The Financial Ombudsman Service publishes an annual review of the cases it undertakes. In last year’s annual review they reported a 58% increase in the volume of complaints referred to them about payment protection insurance (PPI). The FOS said they hoped that the FSA’s proposals in relation to the handling of PPI complaints would be finalised as soon as possible – and that the improved complaints-handling processes subsequently put in place by businesses would result in a significant reduction in the volume of PPI complaints referred to the ombudsman service over the following year (2011).

Unfortunately, the year did not turn out that way. In August 2010 the Financial Services Authority (FSA) introduced new complaints-handling guidance (its policy statement 10/12) about the assessment and redress of PPI complaints. Some businesses started to implement this guidance but a number of high-street banks decided to challenge it.

We may want to ask ourselves why is was so necessary to challenge a policy statement which was intended to make the PPI resolution simpler, but we must also remember, that banks would rather throw money at any issue which might prevent them from having to spend money on a compliance issue, or to repay customers, no matter what the cost. This is all part of their dysfunctional egregious culture.

This meant that these banks started to issue standard letters to customers from autumn 2010, saying they were unable to decide PPI complaints while legal action was ongoing. How many legitimate claimants may have died during this period is not known. This legal action took the form of a judicial review brought by the British Bankers Association (BBA) – on behalf of a number of high-street banks – challenging the FSA and the ombudsman service.

This massive (and expensive) exercise in gratuitous time-wasting resulted in a judgment which was handed down by the High Court at the end of April 2011 – endorsing the FSO approach, and that of the FSA, to handling PPI complaints. Just as the annual review was going to print, the BBA announced that it did not intend to appeal this judgment.

While awaiting the outcome, most banks that were challenging the case stopped responding substantively to many thousands of complaints. Regrettably this led to delays and uncertainties for the consumers in these cases, and following a report on 14 September 2011, the spectre of the biggest financial mis-selling scandal in the industry’s history doesn’t look like going away any time soon.

Millions of customers have now realised that for years banks have made a killing from selling expensive Payment Protection Insurance to people taking out loans – whether or not it was appropriate. It became so profitable for banks to sell PPI that many customers ended up paying for it without even realising they had it.

Others were sold insurance they didn’t need or couldn’t use, but which still ended up costing them thousands of pounds. Now the banks have been forced to put aside billions of pounds to cover the cost of compensation to thousands of customers after abandoning the legal challenge in the High Court.

The latest figures from the Financial Services Authority show that in many cases the industry is still failing in its attempts to resolve people’s complaints. 'Which?' executive director Richard Lloyd says banks still aren’t treating customers fairly. ‘If the next round of complaints data doesn’t show a dramatic improvement then the FSA must take tough enforcement action against banks whose complaints handling isn’t up to scratch.

‘To ensure that consumers get the redress they deserve the FSA must make sure that all major banking groups are required to review the PPI complaints they previously rejected unfairly. These figures point to the blasé attitude banks seem to have towards their customers. In a properly functioning market banks wouldn’t be able to get away with treating customers like this.’

Of the big four retail banks, Lloyds TSB has the worst complaint record, with 84 per cent over the last six months being settled against them. Royal Bank of Scotland and Barclays occupy the middle ground, with scores of 55 per cent and 52 per cent respectively.

Natalie Ceeney, chief executive of the FSA, puts the statistics into context when she says: ‘These latest figures show a significant increase in the number of new PPI complaints referred to the ombudsman during the first half of 2011. This period coincided with the time when most of the high street banks and some other financial businesses had put PPI complaints on hold, because of their legal challenge against the ombudsman service and FSA.’

So, what are we faced with?

We are examining a market sector that has grown too bloated and complacent for its own good. This arises largely out of the fact that there are far too few retail banks to give the customer any real choice, coupled with an attitude within the institutions, that the ordinary rules of commercial probity and legal compliance do not apply to them. This is exacerbated by the fact that most banks now have difficulty in separating their wholesale from their retail arm. Retail client accounts should be separated and ring-fenced miles away from the casino banking end of the institution.

These institutions possess significant criminogenic characteristics. This does not mean they are all criminals, but that they possess the capability to slip into criminal activity whenever it suits them.

So-called 'mis-selling' is a classic example. Customers were routinely deceived into buying PPI insurance, without a full knowledge of the facts, at a significant cost which caused them loss and damage. Such activity is a crime, it is Fraud, and it should have been dealt with as such. The people who sold the products should have been arrested as should their managers, their directors and their Board members, anyone who had an interest and a position in the selling chain should have had their collars felt. The craven attitude of so many British politicians and regulators towards their relationship with the banks, has prevented this example of blatant criminality from being dealt with as such, yet the damage and losses it causes to the country and its citizens are of grotesque proportions, running into many, many billions of pounds

If a group of any other organised criminals had caused in excess of £9 billion damage to UK plc over just one individual financial product, in any other circumstances, then you can rest assured that huge attempts would be made by dedicated teams of law enforcement, to hunt them down, try them and send them to prison.

Because these crimes are being committed by the banks, no-one raises the issue, and yet, if you apply the definitions I included at the beginning, banks bring themselves firmly within the definition of organised crime.

We have to begin to start seeing some major banks as little more than criminogenic enterprises, who deliberately flout or pay little more than lip service to regulations which get in their way of making profit. They have lost any sense of financial proportion, even those whose existence has been preserved by the tax-payer, and at a time when the vast majority of the country is being forced to undergo financial constraints that are causing significant hardship, they still believe that they are entitled to pay themselves bonuses of obscene proportions even when they continue to report losses.

Pure greed influences and informs all their decision-making processes, and we should see and call them 'Organised Criminals' for that is what they truly are.

Father, forgive them, for they know all too well what they do.


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