LONDON Top banks fail to show how risky investments are suited to their customers needs and don't "get" what service really means, the Financial Services Authority said on Tuesday.
The watchdog has picked up concerns over the suitability of investment portfolios, as well as banks' ability to demonstrate suitability, in a significant number of customer files.
"The preliminary results of our latest review into the wealth management divisions of six retail banks are worrying," FSA Managing Director Martin Wheatley said in a speech.
"We are even more worried that the firms' own compliance departments identified a much smaller number. There is a disparity there that suggests some compliance departments are not sufficiently switched on to concerns over suitability," Wheatley said.
UK regulators are trying to draw a line under two decades of mis-selling scandals, from home loans and pensions to loan insurance and interest rate swaps.
The FSA will be replaced on April 1 with a new Financial Conduct Authority charged with improving how consumers are treated and ensuring adequate competition in financial services.
Wheatley will head the FCA, saying it will set up a dedicated wealth management department to "increase and intensify" supervision of wealth management.
There were wealth managers "who can't hold their hands up and genuinely claim to be providing a great service to their customers", he said.
Some elderly widowers with no knowledge of investments were seeing their assets placed in risky portfolios despite specifically requesting low risk.
"I've heard of investors with strong religious beliefs explicitly asking for their assets to be invested ethically, away from areas like armaments, tobacco, gambling, oil or other environmentally grey areas only for their money to be immediately buried in alcohol and oil investments," he said.
There were still no widespread changes in culture at the top of financial firms despite encouraging noises, he said.
"So, there'll be no hint of any regulatory complacency in 2013. I don't believe better customer service is yet an industry-wide crusade," Wheatley said.
"I certainly don't believe every board ‘gets it' yet. I don't believe they understand what good customer service actually looks like."
(Reporting by Huw Jones; editing by Jason Neely)