View from City Road: Code fails to bring banks to account

The banking code is a lacklustre replacement for proper personal banking relationships. Those disappeared years ago, when branches switched to selling packaged banking products to a mass market.

Even as a second-best solution, the code has been badly enforced, and it suffers from the convoy problem, moving at the speed of the slowest bank.

It will have taken eight years from the Jack committee's suggestion in 1988 of pre-notification of charges to the point at which it becomes mandatory under the code.

It is also easy for banks to sidestep controls on circulating information about customers.

No wonder Sir Bryan Carsberg, head of the Office of Fair Trading, was so scathing about the revised code, which fails to keep pace with the banks' evolution into purveyors of virtually every form of financial product.

A tempting, but misleading, answer is to make the code statutory. But this confuses two issues. Banks are heavily into selling life insurance and other investments.

There is a strong case for unified statutory regulation embracing all organisations that sell long-term investments to the public, including banks and building societies.

But banking services where customers do not enter long-term investment commitments - such as plastic cards and current accounts - should be treated differently. Competition on quality of service will do more than any statutory code to stamp out abuse. Technical developments, including the computer information systems that have allowed telephone banking to develop, are encouraging rather than hindering that kind of competition.

This is an issue for the OFT, not the legislators.