inflation report. but a similar transparency is pursued in relation to financial stability with the publication semi - annually of the financial stability review. our interest in the regulatory architecture most obviously stems from this second objective. clearly regulation of financial market participants is not the only means of ensuring such stability : a stable macroeconomic environment, which is what our monetary policy objective is about, is a major factor in avoiding financial system dislocations, while the robustness of the market infrastructure, such as payment and settlement systems, is also crucial. the design of the regulatory framework also has implications for the third objective, the effectiveness of uk financial services. there is a widespread view that greater stability can only be bought at the cost of reduced competition, meaning that these two objectives have to be weighed up against each other and trade - offs made. i would suggest an alternative point of view, which is that these two objectives are often fundamentally aligned. an effective financial system is one in which funds flow to the most productive projects, productivity being measured on the basis of long - term rewards and after an appropriate discount for risk. but this is also a stable financial system. put another way, short - term stability of a sort can be bought through over - regulation or protectionism. but in the longer term, the likely result is an unprofitable industry focused on regulatory arbitrage rather than its prime business, with little instinct or incentive for assessing risks and rewards. it is noteworthy that there are numerous examples of financial systems in emerging markets which have exhibited both fragility and inefficiency. at the bank of england we do still consider that the stability of the financial system depends crucially on the stability of the banking system. banks are at the heart of the payments system, they are the principal source of funds for many businesses, and they are an important savings medium for a large part of the population. the regulatory framework in turn affects the behaviour of banks, making it essential to get it right. it needs to create both the right incentives, and establish the right level of buffer - in the form of capital - to protect the system. we fully support the basel committee ’ s objective of updating the 1988 accord to make it more comprehensive and risk sensitive. and as a member of the basel committee, the bank is working alongside the fsa to ensure that these objectives are delivered. importance of risk sensitive capital charges i am aware that some commentators have questioned the aim of making the system reflect risk in a more

regulated entities should ensure that employees understand that their primary responsibility is to serve customers'financial needs. there should be clear and transparent incentive structures that reward employees for delivering quality financial advice and services rather than just making sales. staff should ensure that products are recommended based on the customer's financial situation, goals, and risk tolerance. towards this, every financial institution should have a policy for customer appropriateness and product suitability framework. by adhering to such a policy framework in letter and spirit, res can greatly reduce the mis - selling complaints which form a substantial portion of the complaints that we get to see. addressing the root cause of customer complaints in order to truly embrace customer centricity, we must delve into the root causes of customer complaints. complaints are not mere inconveniences but vital feedback. as bill gates said, " your most unhappy customers are your greatest source of learning. " 1 they point us toward areas needing improvement. by addressing these root causes, we can prevent complaints from arising in the first place. i would therefore urge you to have a proactive approach in identifying root causes. regular analysis of customer feedback, complaints, and suggestions can serve as an invaluable compass in navigating toward a service - oriented future. root cause analysis will not only allow rectification of individual grievances but also enhance systemic processes to prevent reoccurrence. i would urge the customer service committees to allocate adequate time and focus on discussing the outcome of such root cause analysis to ensure that the institutions put in place mechanisms that can prevent recurrence of such complaints. it has also come to our notice that some of the banks have adopted an innovative approach to classify certain complaints as queries which results in understating the problem. this results in a false sense of complacency, and the truth will be out in any case. we seek to disincentivise such practices and as a regulator, we will not hesitate to act in case if it turns out to be an entity wide behaviour. i, therefore, request the customer service committees to keep a close watch and guard against such practices. resolution at the point of first contact every customer grievance is also an opportunity to prove our commitment to service excellence. therefore, it is essential that customer complaints are addressed promptly and fairly through a robust and efficient complaint resolution process. regulated entities should empower their customer facing staff to resolve issues at the point of first contact. the objective