What’s next for the banking sector?
If Bob Diamond’s resignation is “the first step towards a culture of responsibility” in the UK’s banking industry, what is the second?
Any suggestion that it should be more rules is erroneous; there are already plenty with expensive compliance departments trying to enforce them.
Scandals such as mis-selling and LIBOR have been caused by poor behaviour rather than poor rules, so to avoid a repetition of these high profile exploits that are damaging the reputation, not just of individual banks but the sector as a whole, we need to examine why they happen.
Therefore the next step must be a thorough review of the principles and culture within our financial services organisations in order to ensure that such evidently unethical behaviour can no longer occur.
The Financial Services Authority tried with its principles based regulatory programme Treating Customers Fairly (TCF). This should have forced companies to move away from tick-box compliance to more thoughtful ethics about how to sell and to whom, through a simple list of principles for banks to follow.
Unfortunately, rather than pushing companies to take stronger responsibility for how products are sold and to whom, TCF became another absurd tick-box exercise, driven by hugely expensive compliance activity with no real impact at all on behaviour. Indeed, as the record levels of bank fines would suggest, the compliance mentality applied to Treating Customers Fairly has actually created a worse not better environment as far as sales behaviour is concerned.
We need to see financial services companies demonstrating a real commitment to ethical codes of conduct that are driven from the top and properly entrenched. Behaviour needs to be independently audited using interviews with employees, customers and other stakeholders to establish what is really happening on the ground and whether outcomes are fair in reality.
Bob Diamond was right when he said it’s all about “how you behave when no one’s watching”. At the moment, the answer, in many cases, is pretty badly. Until the banking sector addresses that, its now badly damaged reputation will go unchanged.