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

Abstract:

This paper gives an overview of some of the major UK retail financial services scandals in recent years. I consider the mis-selling of personal pensions, with profit-endowments and PPI policies and the exploitation of customer’s inertia. Each of these scandals have resulted in billions of pounds of compensation to customers. In all the cases there is substantial evidence of financial service companies taking advantage of asymmetric informational advantages over their customers. They have used various behavioural biases to further their objectives. The regulatory solutions have generally been less based on causing behavioural change and more on introducing and enforcing hard rules. Generally, the regulators have been rather reactive except in the inertia case where they have been influenced by academic research. The financial services industry has probably had little overall benefit from these episodes as very substantial compensation has been payable and there has also been considerable reputational damage. Many individuals in the industry have, however, probably benefited personally from bonuses or commission that has not been repaid as the costs of compensation have generally fallen on shareholders or policyholders.

Speaker:

Professor Robert Hudson is the author of a book on stock market investment, over ninety 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.