Finance firms need to do what is right for the consumer not just focus on staying inside the law if they want to regain the trust of the public, the head of New Zealand's market's watchdog has warned.
Speaking at the financial services industry conference Rob Everett, the chief executive of the Financial Markets Authority, said the global financial crisis had stemmed a lack of trust in the big financial players.
But the massive regulatory and political response to that had masked the risks caused by poor conduct and that was now coming to the fore and costing companies dearly with consumers suffering a second phase of a crisis of trust in the industry.
"Right now, in a very visible and painful way, the failure of management and boards to understand how to have their employees - and the products they sell - generate fair outcomes for their customers is costing them dear."
He pointed to a global report called the Edelman Trust Barometer, which found there is an increasing sense within the general population that the rich have access to information and opportunity that the rest of the public do not.
There was also an increasing distrust of major institutions and far more influence from peer to peer services like Air BnB, TripAdvisor and Trivago.
"The report showed that the slow recovery in trust of financial services businesses since 2012 had stalled.
"In major jurisdictions such as the US, Hong Kong, Brazil and France that trust has dropped since 2017 by double-digit percentages – as much as 20 per cent in the US.
"The report reflected on the fact that we trust our banks to complete transactions on our behalf [mostly] and to keep our assets safe from fraud or cyber-theft, but that we don't trust them to look after us."
Everett said the falling trust had been driven by banks becoming financial supermarkets in which cross-selling had resulted in some poor outcomes for consumers while the drive from shareholders meant companies were focused on short term returns.
"The focus on serving shareholders above all else, in much of the current Western corporate law model, might be argued to be at the heart of the issue."
He said some of the trust issues could be addressed by regulation but not much.
Instead he called for firms to focus more on doing what is right for consumers.
"If you want the sector to be trusted, asking what's right, rather than what's not against the law – that is what's necessary."
He also called for boards of finance companies to change their view on how much money senior managers should make and how much shareholders can expect and focus "unrelentingly" on serving customers.
He said those customers should be the end users not the intermediaries that sold those products.
"I can't stress enough that we can't change this by tinkering at the edges. Change has to be more fundamental."