An Overview of UK Retail Financial Scandals in recent decades: Uses and abuses of Behavioural Finance

Event details

This event will explore the behavioural aspects underlying inefficient decision making of retail consumers in the banking/financial services sector.

Abstract

Instances of banks and other financial services companies in the UK taking advantage of the cognitive limitations and biases of their retail customers have been numerous and sometimes extremely significant in recent decades. For example, some of the major scandals, which have each resulted in billions of pounds of compensation to customers, have involved the mis-selling of personal pensions, with profit-endowments and PPI policies and there have been numerous other instances of consumer protection issues.

Some scandals have resulted in regulatory action such as the regulators setting specified rates of return to use in investment projections. However, specific concerns are still being raised by regulators (e.g. the FCA), charities and consumer bodies in the UK that factors relating to suboptimal behaviour by consumers relating to issues such as consumer inertia, unfair cross-subsidies, add-on goods and product complexity may lead to poor financial outcomes for those consumers.

The presentation gives an overview of the nature of these events with a particular emphasis on the behavioural issues involved. It considers the extent to which financial institutions can and have exploited their customers, whether customers can be educated or ‘nudged’ into different behaviours and the role of the regulators in preventing future problems.

It goes on to give a practical example of academic research which has significantly affected regulatory policy in this area and discusses how it was used as the basis of an impact case study in the recent Research Excellence Framework (REF2021).

Biography 

Professor Robert Hudson is the author of a book on stock market investment, over eighty refereed articles in leading international journals and a range of other publications and has presented at many universities and international conferences. He is a co-editor of the British Actuarial Journal and a past editor of the Review of Behavioral Finance and is on the academic board of several other journals. He is a Fellow of the Institute of Actuaries and a Chartered Mathematician and has extensive business experience in financial services. He has wide research interests related to financial markets and the financial services industry with particular emphasis on the financial behaviour of individuals.

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