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Ensuring appropriate conduct and culture in the financial services industry - New trends in the financial sector

Do the banks put your interest first? A real focus on customers is still miles away

By Tang Paul - MEP, Committee on Economic and Monetary Affairs, European Parliament

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Last year, president Juncker of the European Commission presented his proposals for a capital markets union (CMU). The proposed action plan is voluminous and full of good resolutions, but nevertheless it´s partial. It is paramount put economy back in service of the customer again, but here the action plan falls short. The EP can play an important role in this recalibration.

The popular movie The Big Short unveiled how the interest of the bank and that of the customer went astray. Short-termism and maximisation of profit were rife, against a background of poor regulation. Of course, the context in the US and the EU were different. But the need for proper regulation and a healthy business culture were equal.

However, both notions are underdeveloped in the action plan. The word culture does not show in the action plan, and the plan is proposed detached from all action geared towards fixing banks, including the completion of the banking union. However, a recent European Parliament report on the CMU, asks for “banks, non-banks, national central banks and the ECB, to work towards a cultural change and a culture of compliance”. Furthermore, the EP is looking for ways to link the establishment of the CMU to the completion of the banking union.

The financial sector should put the interest of the client first.

What the Commission does put forward, is the intention to have a close look at the financial rules. This can be useful, but only with a clear end in view. The Commission should not cut back rules without any reason, but should do a genuine test if the rules are still serving the real economy.

What is more, new investment models, like crowd funding and private placement offer great possibilities. It is this kind of models that give SME’s access to capital. Accordingly, the proposed revision of the European accounting rules is also helpful, because it reduces needless bureaucracy for SME’s.

The capital markets union should address this kind of opportunities. But most importantly, the financial sector should put the interest of the client first, whether it is a consumer or a small entrepreneur. Organizations that are truly customer-oriented use their smartest brains as financial advisors for consumers and entrepreneurs — not for high-frequency trading. In this way working for the financial sector will become honourable again, and that is good for both society and sector.