There was an attention grabbing headline on the Sky News website last week – ‘bank culture reforms will take a generation’ (except it was in bold and about 72 font) which the cynical of us would suggest was designed to result in the usual ‘jail the criminal bankers’ response. It’s easy to dismiss the story as one of these, but let’s have a look at some of the main themes in the 71 page London CASS Business School report, which the story was all about. In summary, they are:
- An aggressive sales culture was a major driver of bank failure – leading to toxic lending
- Policy intervention (from regulators and legislators) address the structural issues but culture change is left to the banks
- All banks have some measure of culture change underway – in response to the structural change pressures
- Culture change is fragile, but challenger banks do it better – possibly because of their smaller size
- Many stakeholders expect bad practices to continue – especially consumers, but does the reporting style as exemplified in the Sky News headline exacerbate this?
- Improving culture will take a generation – through a focus on driving change through all levels of the firm.
Clearly, previous aggressive sales culture had a very large part to play in the problems that the report calls a ‘near death experience’ but which most of us refer to as the credit crisis. I disagree with CASS’ assertion that the aggressive sales practices were just a feature of the past decade. In a previous life I moved from retail banking into regulatory risk in 1997 because of the intolerable sales targets (and the consequences of not meeting them) so in the firm I worked for it started for before the 2000s.
The failing culture could therefore have been a feature of the previous generation, so why are we now surprised that it may take a generation to fix it?
A very appropriate speech was made by John Griffith-Jones, FCA Chairman, at CASS on the 13th November. Interesting coincidence, the location? I don’t think so. In it, he makes a very good point, that nothing creates memories better than disasters, but nothing clouds memories better that success. And, in possibly my favourite quote of 2014, he recounts the comments of Hugh McCulloch, the first controller of the currency, who recommended to bankers in 1863 that they should ‘…pursue a straightforward, upright, significant banking business. Never be tempted by the prospect of large returns to do anything but what may be properly done…Splendid financiering is not legitimate banking, and splendid financiers in banking are generally either humbugs or rascals.’
So, culture and ethics were causes of concern 150 years ago.
The final comment I want to make is on whether or not CASS’ finding that cultural change is left to the banks is really true? The recent FCA fines on five banks for failing to control business practices in their G10 spot foreign exchange operations were accompanied by comments from Martin Wheatley and Clive Adamson:
MW: ‘This is not just about enforcement action. It is about a combination of actions aimed at driving up market standards across the industry. All firms need to work with us to deliver real and lasting change to the culture of the trading floor.’
CA: ‘The supervisory measures that we are announcing today will make sure that real cultural change is delivered across the industry, and that senior management take responsibility for ensuring that the highest standards of integrity operate across all their trading businesses.’
Not left just to the banks, then!
Time for the plug!
The ICA Diploma in Governance, Risk and Compliance has recently been re-engineered to reflect the changing compliance environment. In it, we are now examining and explaining the connections between governance, risk and compliance, and the importance of ethics, integrity, values and culture – in addition to the core topics of regulation, compliance requirements, and the skills needed to be an effective compliance professional from the previous ICA Diploma in Compliance. Get in touch with us for more details.