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The current global financial crisis has sparked an intense debate about what went wrong in the financial markets and how to remedy to their shortcomings. Following political pressure to act, regulators, supervisors and advisory forums have published a great number of recommendations on how to improve the functioning of global financial markets. The question is now to assess if the important issues are being addressed by all market players.



UNI Finance has been calling for a re-think of the world’s financial system since the beginning of the crisis last summer. In a statement, it set out 13 demands on the regulation of financial markets. They include increasing the transparency of financial services companies, reviewing capital adequacy and bankers’ pay systems rules as well as enhancing regulation of unregulated players (hedge funds, sovereign wealth funds and private equity firms).



A key demand for UNI Finance is in particular that “Finance sector employees are those that make the industry function. Regulators and companies must ensure that working conditions and pay incentives promote rather than hinder regulatory objectives and excellent customer service”. Finance employees want to be rewarded for providing good service and quality advice, rather than for selling inappropriate products to customers.



This last issue is particularly important as the current financial crisis has had unprecedented consequences on workers and consumers. Because of finance institutions’ irresponsible behaviour, huge losses were made leading to the closure of firms or divisions of firms and to ten thousands of layoffs. In addition, predatory lending practices by mortgage lenders - including misrepresenting the terms of loans, making loans without regard to consumers’ ability to repay, or packing loans with undisclosed charges and fees – have had a devastating effect on home buyers. Millions of people are now struggling to meet their home loans or have lost their house.



An assessment of the current financial regulation debate shows that the issues of consumer protection and the working conditions of finance employees are not being debated in a satisfactory way among regulators and supervisors.



Worse, as a result of the crisis and the greater pressure faced by financial institutions to make profits, some banks are even setting more aggressive sales targets for their employees (e.g. in Australia and New Zealand). This means threatening their workers with less pay or dismissial if they do not sell. Qualitative advice and the customers interests become secondary. Some banks thus intensify policies of undue risk taking that led to the financial crisis and huge losses for their shareholders. They have not learnt their lesson and regulators still ignore such behaviour.



The current business model of the financial industry has failed. The primary purposes of a bank or insurance company is to provide good service, good jobs as well as good and sustainable return to shareholders. What we have seen instead is a scorched earth policy of maximising profits for short-term investors and yearly incomes for top managers.



It is time for regulators to stop these excesses. Regulators must take up the 13 demands of UNI Finance. They must ensure that financial companies act responsibly towards the economy, their shareholders, their customers and their employees.



For more on the financial crisis: http://www.uniglobalunion.org/unifinance.nsf/($Web)/CC8C57DC91E54411C125747C002B3D61#



(Title story of UNI Finance Web Digest 2008 No 3: )