It’s Time We Changed Banking for Good

Mary Clarke, CEO, Cognisco

This week it was announced that Lloyds Banking Group has set out a further £1.8 billion to compensate those who were mis-sold payment protection insurance (PPI), after already setting aside £170 million in October 2013. The bank said this extra amount was needed to cover the expected level of complaints and associated administration costs.

Mary Clarke

This follows news that RBS may face full-year losses of up to £8bn, after the bank said it planned to set aside £3.1bn to settle claims relating to mortgage products, PPI claims and interest rate hedging. RBS boss Ross McEwan said last week, “The scale of the bad decisions during that period [the financial crisis] means that some problems are still just emerging.”

The bad decisions that led in part to the financial crisis have damaged the banking sector and people’s faith in banks. A recent report published by Edelman Global Trust Survey[i] 2014 said that banks and financial institutions are the least trusted sectors in the whole global economy. Given that trust should be at the foundation of all financial services, banks have a long way to go to restore our confidence.

Barclays has recently announced plans to cut around 400 jobs and clamp down on expenses such as travel to meetings as Chief Executive Antony Jenkins pledged a fresh direction for the bank in an attempt to restore its reputation. Barclays has faced a series of scandals over the years, the most high profile being the attempt to fix the Libor rate which led to a fine of £290m in June 2012 and the resignation of both Barclays chief executive Bob Diamond and chairman Marcus Agius.

So what is the solution? How do banks rebuild their reputations after so much controversy?

There were several recommendations put forward last year in the UK’s Parliamentary Commission on Banking Standards report into the culture and failure of the UK’s banking sector ‘Changing Banking for Good’. These included making it easier to send top bankers to jail for “reckless misconduct”; a wholesale shake-up of the current approval regime for bankers after finding just 156,000 individuals on the current register – which would allow regulators to take action against them; a radical overall of the way bank bonuses are calculated and that banks should have a full-time chairman to ensure tough scrutiny of executive managers.

However, I believe that more has to be done to address banking failures that are down to human error or rogue behaviour. Financial institutions can only do this when they have a better understanding of their employee’s skills, knowledge and experience, as well as how they actually behave on the job.  All employers need to understand how competent their employees are.   However, the sector seems to have forgotten this and allowed a culture of greed to dominate.

Change will only come when banks invest greater resources in ensuring that the people they employ are not only competent but demonstrate the right behaviours at work all of the time. They need to be able to weed out risky individuals and clamp down on risky behaviour and decision making and change the culture within.

Assessments that examine employees’ behaviour and likely decision making should be part and parcel of working life – allowing managers to spot and address risky behaviour and deal with it, before serious problems arise.  With such assessments managers have an accurate picture of how competent their employees are together with an indication of their likely behaviour in any given situation.

People can make or break a business as we have seen in the banking sector, so isn’t it time for the financial institutions to address their ‘people risk’ issues and ‘change banking for good’

Mary Clarke, CEO, Cognisco

This week it was announced that Lloyds Banking Group has set out a further £1.8 billion to compensate those who were mis-sold payment protection insurance (PPI), after already setting aside £170 million in October 2013. The bank said this extra amount was needed to cover the expected level of complaints and associated administration costs.

Mary Clarke

This follows news that RBS may face full-year losses of up to £8bn, after the bank said it planned to set aside £3.1bn to settle claims relating to mortgage products, PPI claims and interest rate hedging. RBS boss Ross McEwan said last week, “The scale of the bad decisions during that period [the financial crisis] means that some problems are still just emerging.”

The bad decisions that led in part to the financial crisis have damaged the banking sector and people’s faith in banks. A recent report published by Edelman Global Trust Survey[i] 2014 said that banks and financial institutions are the least trusted sectors in the whole global economy. Given that trust should be at the foundation of all financial services, banks have a long way to go to restore our confidence.

Barclays has recently announced plans to cut around 400 jobs and clamp down on expenses such as travel to meetings as Chief Executive Antony Jenkins pledged a fresh direction for the bank in an attempt to restore its reputation. Barclays has faced a series of scandals over the years, the most high profile being the attempt to fix the Libor rate which led to a fine of £290m in June 2012 and the resignation of both Barclays chief executive Bob Diamond and chairman Marcus Agius.

So what is the solution? How do banks rebuild their reputations after so much controversy?

There were several recommendations put forward last year in the UK’s Parliamentary Commission on Banking Standards report into the culture and failure of the UK’s banking sector ‘Changing Banking for Good’. These included making it easier to send top bankers to jail for “reckless misconduct”; a wholesale shake-up of the current approval regime for bankers after finding just 156,000 individuals on the current register – which would allow regulators to take action against them; a radical overall of the way bank bonuses are calculated and that banks should have a full-time chairman to ensure tough scrutiny of executive managers.

However, I believe that more has to be done to address banking failures that are down to human error or rogue behaviour. Financial institutions can only do this when they have a better understanding of their employee’s skills, knowledge and experience, as well as how they actually behave on the job.  All employers need to understand how competent their employees are.   However, the sector seems to have forgotten this and allowed a culture of greed to dominate.

Change will only come when banks invest greater resources in ensuring that the people they employ are not only competent but demonstrate the right behaviours at work all of the time. They need to be able to weed out risky individuals and clamp down on risky behaviour and decision making and change the culture within.

Assessments that examine employees’ behaviour and likely decision making should be part and parcel of working life – allowing managers to spot and address risky behaviour and deal with it, before serious problems arise.  With such assessments managers have an accurate picture of how competent their employees are together with an indication of their likely behaviour in any given situation.

People can make or break a business as we have seen in the banking sector, so isn’t it time for the financial institutions to address their ‘people risk’ issues and ‘change banking for good’