Banking Fines Highlight Urgent Need for Banking Culture to Change

Mary Clarke, CEO, Cognisco

This week five banks – HSBC, Royal Bank of Scotland, Swiss bank UBS and US banks JP Morgan Chase and Citibank – have been collectively fined £2bn by regulators in the UK and USA for traders’ attempts to manipulate foreign exchange rates. It is also expected Barclays will be fined in a separate investigation which is currently ongoing.

The UK’s Financial Conduct Authority (FCA) and US regulator, Commodity Futures Trading Commission (CFTC) issued the fines.

These fines come after a year-long investigation into claims that the foreign exchange market, where banks and other financial firms buy and sell currencies between one another, was being rigged.

Martin Wheatley from the FCA said the banks have “let down public trust” and “the individuals themselves will face consequences.”

It’s also been reported that several senior traders at the banks have been put on leave as the Serious Fraud Office prepares potential criminal charges against those behind the scheme.

This news comes after a long list of banking scandals and fines over the past couple of years. Perhaps what is shocking however, is that despite the uproar over the part banks played in the financial crisis and the fallout that has meant much closer scrutiny and governance –little seems to be stopping bankers behaving in same risky ways as before the financial crisis.

An interview with former chancellor of the exchequer, MP Alistair Darling in 2011 by the BBC^[i], three years after the financial crisis highlighted Mr Darling’s “absolute astonishment” he felt when he asked Britain’s largest banks to account for the risks contained in their businesses – and they were unable to come up with a coherent answer. The reporter hits the nail on the head when he says “this total lack of knowledge – couple with the hubris of profit-taking built on lax credit – went to the heart of the financial crisis.”

Banks seem to still remain in the dark as to where their people risk and reputational risk lies.

There is a clear lack of transparency about how certain individuals behave or are likely to behave seemingly allowing ‘rogue’ bankers to get away with partaking in activities which may be deemed acceptable by the long lasting banking culture, but are not correct nor morale and lead to mistakes ostensibly intentional or not.

This culture within banks is what is allowing such behaviour to continue to go unchecked and nothing will change unless the sector makes steps towards ridding itself of its so called ‘toxic culture’ of greed, excessive risk taking and bad decision making.

Steps can be made right now, the sector would benefit from having measures in place that provide them a level of visibility across their organisation and transparency of the exhibited behaviours and likely behaviours, the existing culture, the likeliness of individuals following process and whether a process itself is no longer correct.

Within the industry itself, there have been steps to improve banking standards and tighten up governance with increased regulation. The Banking Standards Review Council (BSRC) was also established this year and received the full backing of Mark Carney, governor of the Bank of England.

The BSRC aims to improve banking standards by identifying and encouraging good practice in learning, development and leadership, with a particular focus on behaviour and ethics. However with the global complexity of the banking sector this is expected to take years.

The FCA and PRA have also commissioned consultation papers for ‘accountability’ in banking, proposing senior managers must take further responsibility of their actions, but questions are being raised about how this can be implemented. (http://www.fca.org.uk/news/cp14-13-strengthening-accountability-in-banking)

For things to change and for banks to win back consumer trust and repair damaged reputations all banks and bankers must first be open to change and make that clear. They must be determined to review and change their culture for the better and to gain a much better understanding of how their employees think, act and behave at work.

But first they must define for themselves what a better culture looks like, what behaviours they would like their staff to exhibit, what ‘correct’ process and procedure looks like and gaining buy-in across all levels of the organisation.

Steps banks can take right now:

1. Invest in a cultural survey which provides a ‘baseline’ of the current cultural norms and understand how individuals truly behave, conform to processes and understand their roles.
2. Review existing training, comms, processes to review if, how and where they match cultural aspirations.
3. Audit training and comms to understand why despite continual training, review, and refreshers, ‘it’s not sticking’, even if inroads to embedding a new culture have been identified and implemented.
4. Evaluate these findings and map interventions to each individual’s specific needs which help the senior management team and executives add a level of transparency and visibility around what their people know and understand and how they are likely to behave so they can PRE-EMPT problems such as this one arising in future.

Only with this knowledge and transparency will banks be able to make lasting changes to their working culture and become institutions we can be proud of.

[i] http://www.bbc.co.uk/news/business-29982178