Treating principles fairly

Earlier this month, Scottish economist Adam Smith supplanted Edward Elgar (ironically, some might say, especially in Elgar's 150th anniversary year) on the English £20 note.

Smith is widely regarded as the founding father of liberal economics, but he was no ingénue. "People of the same trade seldom meet together," he noted in his masterpiece, The Wealth of Nations, "even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices."

Now that sounds pretty cynical, especially coming from the quill of the man who supposedly built the intellectual foundations of the free market, but it is also a view that continues to find echoes today.

It is possible to regulate on the basis of principles; and it is possible to regulate in a highly prescriptive, inflexible manner. Equally, it is perfectly reasonable to focus on outcomes, on processes or on both.

The FSA's Treating Customers Fairly campaign does all these things and more on the assumption that normal competitive pressures are not enough to force financial services institutions and intermediaries to conduct themselves according to the highest standards.

Yet no one tells supermarkets to treat their customers fairly, or newsagents, or the manufacturers or retailers of shelving or light bulbs, paper clips or tea bags.

The case for regulating financial services is specifically predicated on the assumed mismatch in knowledge between providers and customers; and the belief it is unlikely ever to be cured.

On that basis, we must be induced to behave decently, lest we succumb constantly to the temptation to exploit our superior know-how mercilessly and abuse our privileged position in the market.

Some days this dystopian vision seems far-fetched, then another mis-selling story hits the public domain and it's red faces all round. Why must a handful of miscreants consistently let the side down, we ask ourselves, tarring us all with their squalid brush?

Perhaps because it isn't only a few rogue elements who demonstrate room for improvement: for instance, on a random trawl of the internet, I found both a leading bank/building society and a well-known insurer whose customer helplines (including those for claims and, would you believe, complaints) are on premium numbers.

Is that really necessary – or fair? Is it fair, furthermore, to make it so difficult for hard-up customers to open a savings account? People with debts or on low incomes are inundated with offers of credit cards or methods of rescheduling, consolidating or increasing their debts.

Yet constantly one hears that banks and building societies write them off as hopelessly unprofitable candidates for savings accounts. That's hardly fair is it? Nor is it likely to enhance the welfare of the nation. It's a recipe for economic and social disaster and casts a long, dark shadow over our debates on financial capability.

Those who engage in these types of marketing or commercial behaviour will always manage to justify themselves one way or another: "We are dealing with consenting adults and moral agents"; "these are not children or imbeciles"; "if they don't like what we do, they are free to go and take their custom elsewhere"; and so forth.

We are not dealing in replica football shirts, however. These are life-changing, long-term decisions. This behaviour does reinforce negative stereotypes of the financial services industry – precisely those stereotypes, indeed, that caused so many of our problems in the first place. It just doesn't seem … well, it doesn't seem fair, does it? IT

Lord Hunt is chairman of the financial services division at Beachcroft, and deputy president of the CII