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By Mary Clarke, CEO, Cognisco

The global banking industry has been heavily criticised in the past few years and its reputation has suffered greatly. Banks were blamed for causing the global recession and there have been several high profile scandals involving PPI mis-selling and interest rate fixing, which have resulted in huge fines. The latest bank to be hit with a fine was the Lloyds Banking Group, which was fined £218m for “serious misconduct” over Libor interest rate rigging in July by the UK-based Financial Conduct Authority (FCA) and a US-based trading commission. Lloyds is the third bank to be fined for Libor-rigging, after both Barclays and RBS have already settled claims.

Lloyds Bank was also fined £28m for “serious failings” in relation to a bonus scheme for staff at the end of 2013, the largest fine the Financial Conduct Authority has given for retail conduct failings.

These incidents highlight that a ‘toxic’ culture still exists in the sector is continuing to damage customer confidence. Trust in banks is at an all-time low according to the Edelman Global Trust Survey[i] 2014 – which found banks and financial institutions are the least trusted sectors in the whole global economy .It is clear that the sector has its work cut out to rebuild its reputation and regain consumer trust.

Mary Clarke
Mary Clarke

Many of the recent scandals have been caused by human error or rogue behaviour that banks have allowed to happen – either consciously or not. The reality is that the behaviour of many people within financial institutions has remained unchecked for decades. Now, in order to drive change, it is essential that banks seek to gain a better understanding of their people and how they behave at work to reduce risk.

Changing banking culture for good

Last year, several recommendations were put forward 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” and 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.

Last month, think tank ResPublica, called for an oath for bankers to “fulfil their proper moral and economic purpose,” suggesting this could raise accountability and standards in banking and help restore public trust. They suggested that the British Bankers’ Association, Building Societies Association and the new Banking Standards Review Council should adopt the oath for their members.

British Bankers Association executive director for financial policy and operations, Paul Chisnall, said: “Restoring trust and confidence is the banking industry’s number one priority. But meaningful cultural change in an industry as complex and diverse as banking takes time.”

Understanding employee behaviour

Stamping out risky behaviour will also take time and it won’t be simple. Organisational risk does not sit neatly in one central function. Risks exist in a myriad of behaviours and habits of individuals spread across all levels of the operation. So understanding how individuals behave, how competent they are and the decisions they are likely to make on a daily basis is vital for reducing people risk.

One effective way of doing this is to introduce situational judgement assessments based on realistic work scenarios to measure combination of employee competence, knowledge and confidence. Such assessments not only reveal what people know and how they use their knowledge, but also how they are likely to act in certain situations and the decisions they are likely to make. Assessing people’s competency and confidence together, enables companies to spot areas of misunderstanding and risk – where an employee’s knowledge of a certain aspect of their role might be low but their confidence is still high. Unchecked this kind of situation could lead to serious errors being made or costly mistakes.

Regular employee assessments can give banks complete insight into how individuals are performing across the business. This could help them identify star performers and leaders, as well as those in need of specific training and development that will improve performance.

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. Only by addressing human behaviour will banks be able to drive a positive culture change, which will help them regain public trust and restore their damaged reputations.