Julian Knight: The NHFA scandal shows why financial firms need much harder regulation

In an industry notorious for mis-selling scandals the case of HSBC's subsidiary NHFA has plumbed new depths. The contemptible practice of routinely mis-selling to people in their seventies, eighties and nineties has shocked the nation.

It's evil and, if it had taken place in the US, executives would be in handcuffs right now. Sadly, we don't do it that way here. HSBC has committed to refund monies even for the period before it acquired NHFA in 2005. That's the least they can do.

But having said all that, some good could come from this terrible episode. I think we have heard enough about how regulation damages competitiveness. Regulation of financial services and pre-emptive action is good for the industry. The reputation of banks, insurers and even building societies – after debacles such as Norwich & Peterborough and the Derbyshire – is so utterly trashed that the only way for people to regain any trust will be if they know these firms are regulated to the hilt. Of course, the industry will say this will harm so-called product innovation, but death bonds and most structured products are innovations we could do without.

The reaction to the NHFA scandal among my friends and family has been to shake their heads and say that they aren't surprised: they are used to being ripped off and, frankly, lied to by the financial services industry. In the past year or so, the Financial Services Authority (FSA) has partly woken up to this reality and been more aggressive in its approach (it could hardly have been less aggressive).

The banning of commissions at the end of next year is very welcome – NHFA has given the lie to those such as the Treasury Select Committee who called for a delay to this step. But the FSA is still an organisation of bean counters rather than enforcers. It suffers from the fact that, historically, its consumer panel was a backwater. If the FSA sees something it is unsure of, it should act immediately, using a version of the Office of Fair Trading's "stop now" powers. I'd also like to see criminal sanctions introduced for the heads of firms that err – there are some moves to make directors of banks more responsible for their institutions but these don't go far enough. It's only through tougher and earlier intervention that faith can be restored. No wonder we have a massive pensions and savings black hole.

But whatever the FSA does in future – and whatever it's called – the question still remains: who can you trust? The answer at the moment as far as the financial services industry is concerned is no one: not the staffer in the bank pushing a credit card on you nor the sharp-suited adviser. If you know a local independent financial adviser who comes through good word of mouth they may be worth seeing, but ultimately the only sensible option is to acquire the knowledge yourself. The costs of not being financially savvy can be massive – just look at the shocking case of NHFA.

Loopholes remain

As predicted in The Independent on Sunday a few weeks ago, HM Revenue & Customs has moved to close down a range of stamp duty tax-avoidance loopholes. This will hopefully stop some dodgy estate agents selling schemes with massive fees attached, promising to negate stamp duty. However, some of the biggest loopholes, involving foreign-based companies and trusts, still seem to be present. You and I have to pay stamp duty when buying property, so why doesn't a major international fund or company?