Parliamentary Commission on Banking Standards Report

Today is the publication of the PCBS report. Here is my opinion.

Money laundering, forgery, fraud, corruption – if you do the crime, you do the time. It seems that’s the case everywhere but banking. This is one conclusion arrived at after a year on the Parliamentary Banking Standards Commission (PBSC) examining the standards and culture of the industry. Why is it an off-shore island, seemingly not subject to the normal rules of society? 

There are three main reasons.

Firstly, these behemoths are too big to fail. They can maximise risk in order to boost their profits and bonuses in the safe knowledge that the poor old taxpayer is there to pick up the tab and save their institution for another rainy day.

Secondly, unlike any other business the first question they ask is ‘What level of short term profit can be made?’ Not, ‘What can we devise to serve the interests of our customers?’ but ‘What can we sell, irrespective of suitability to customers’ needs?’ A sales-based culture has pervaded the banks.

Thirdly, there is no individual accountability at the helm. All sorts of murky, on occasion illegal, activities such as Libor rigging can be taking place, but when it comes to the top echelons there often exists a “no see, no tell” policy. In fact, when these ‘masters of the universe’ were giving evidence they appeared content to come across as uninformed and ignorant of events than knowledgeable. Otherwise they would be admitting responsibility.

All the scandals of banking – and there seems to be a fresh one with every new page we turned – can be reduced to one, namely that of the customer coming last. So how can we ensure the transformation of an industry crucial to the economic well-being of citizens and communities?

The PBSC report has no magic prescription – it will take many years to change banking culture, since it requires individual buy-in. But responsibility of those at the top for a ‘duty of care’ to customers is essential if a proper ethos is to permeate the organisations.

Take Payment Protection Insurance (PPI) – a product which can benefit those who find themselves financially covered if they become unemployed, after taking out a loan. But it was expensive and intentionally sold to the mass market from the mid-1990s, despite warnings from consumer groups and politicians. It became the corner stone of the profits and bonuses of the main banks until 2009.

The banks ignored the public outcry and with their muscle scared the regulator into submission. The result is all too evident today: a mis-selling bill of £15bn that could more than double – the equivalent of over £500 for every individual in the UK. Incredibly, one bank Chief Executive told us that on PPI they were “on the side of the angels”. 

An instant demonstration of a change of behaviour and culture would be for them to own up to this deceit, apologise by writing out to their customers and settling the claims quickly and efficiently. Instead we have seen delay, denial and lobbying for stricter limits on complaints.

Individual accountability of Chairmen, Chief Executives and Boards is essential. This is where the Financial Conduct Authority has to toughen up and ensure a named Board/Senior Executive is responsible for each line of activity. Never again should we hear the refrain from the regulator that when transgressions occurred and they tried to pinpoint responsibility “the trail went cold”. We cannot help but conclude the regulator was captured, cowed and conned by the industry they were charged with supervising.

As far as pay and rewards are concerned, there is a delusional element to those who thinking they are special and worth it. Whilst the norm for society is remuneration and increments of hundreds and thousands, it is multiple of millions of pounds for senior bankers. Only by tackling the ‘too big to fail’ – and dealing with the implicit subsidy from the taxpayer – can this be brought down to more sensible levels.

In retail banking, staff need to be rewarded for the right things – delivering high levels of customer service rather than simply selling products. And this must involve removing the pressure on the front-line to sell at all costs – something that often stems from performance management schemes.

The day when a Chair or Chief Executive of a bank receives a “Thanks, I trust you” letter from a customer will be the day when the industry has turned the corner.

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