The use of league tables in financial services

Abstract

This paper considers the principles underpinning the proposals for a comparative information scheme for personal financial services products. In October 1999 the Financial Services Authority (FSA) issued Consultation Paper 28: ‘Comparative Information for Financial Services’ which outlines the preliminary work carried out by the FSA and its consultants in this area. The scheme has some similarities to the league tables found in the education sector and it is likely that, if implemented, the proposed scheme will become known as the ‘Finan‐cial Services League Tables’. The consultation paper identifies specific outcomes which the FSA states are its policy objectives in this area. These objectives are in the areas of consumer knowledge and competition. This paper considers the rationale for the proposed scheme and looks at its potential benefits and problems. To do this it draws on both the FSA's Consultation Paper and the established body of research int the effectiveness of performance measurement and league tables. The paper considers the issue that in order to be worthwhile a performance measurement system must generate a net benefit. Specifically, the costs of setting up and maintaining the system plus the imperfections in the information generated by the system must be outweighed by the value of the information to its users. The costs of setting up and administering a system for financial services league tables can be quantified. The potential both for imperfections in the information generated and in the way in which that information is used are not so easily quantified, however, and require careful analysis. This paper concentrates on providing analysis of these potential imperfections. It concludes by discussing whether these potential problem areas are of sufficient significance to undermine the purpose and value of the proposed league table scheme.