The UK financial services industry should introduce an eBay-type ratings system that each customer or counterparty could supply after every transaction, says the Securities & Investment Institute (SII).
In the Securities & Investment Review (S&IR) Simon Culhane, chief executive of of SII, says the financial services industry needs better ways for customers to provide feedback and praises the eBay customer ratings system.
He says the eBay system offers a highly visible, individual feedback rating given to each member, which allows users to decide whether they trust the counterparty before committing to any deal.
"An individual's rating is dynamic and changes according to the simple feedback received from the counterparty on completion of each transaction. The feedback is positive, neutral or negative and is usually accompanied by a brief comment," says Culhane.
"Both the comments and the ratings are visible at all times to any potential counterparty that is considering entering into a transaction," he adds. "It is, in effect, a simple, empirical way of measuring reputation and provides a real expression of trustworthiness."
Culhane argues that eBay customer feedback relies entirely on individuals wanting to protect and enhance their reputation, using no legal rules or power, and draws a parallel with the financial world where reputation and trust are crucial.
"What is needed is a measure of proportionality that discriminates between firms with systemic problems and those with occasional blips. Wholesale, private client and retail trades would all be rated," he says.
Culhane says the effect on reputations when these ratings are published would be immense as counterparties and customers would be able to ascertain the reputation and integrity of a firm immediately.
Firms that adopt a principled approach and actively demonstrate their fairness, honesty and integrity would be the winners.
The eBay ratings system is not without its detractors however.
Evan Owen of the IFA Defence Union, a lobby group for independent financial advisers in the UK, notes that some eBay members take great delight in demolishing a good rating.
"Then we have the potential for 'Malicious falsehood' or even 'Vexatious damages' claims," he suggests. "Good idea in theory, but totally impractical."