January 2016 – Bank culture revisited

January 2016 – Bank culture revisited

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Bank culture revisited

Ch-ch changes
In our last article: ‘Bank Culture – Change is Coming’ (Nov 2015) – we gave an overview of the new regulatory landscape aimed at improving the culture of UK banks. But, due to the apparent U-turn in the FCA’s approach to examining bank culture, we are now revisiting the topic.

A review of bank culture – including how pay, performance and promotion are addressed – was written into the FCA’s business plan for 2015. Its decision to shelf this proposal, albeit to pursue a different approach, has angered many and is seen as a major U-turn and softening by the regulator towards the industry. So why the change and what are the implications?

Under pressure?
It is not clear why the FCA has changed its stance – it now insists that cultures across banks are too different to allow for a direct comparison. To others it appears that the regulator has bowed to pressure from the Treasury to adopt a softer approach – including actions to appease the ‘threat’ by HSBC to relocate abroad.  Certainly the shelving of the FCA’s plans to publish internal details will come as welcome relief to some under-fire banks. But what now for the continuing efforts to restore the public’s confidence in the industry?

Inspiring change
A bank’s culture is established by the behaviour of its senior individuals; it flows down into everything a bank does. The new regulations to govern this, including the Senior Managers Regime (see November’s article), remain in place, and as long as they are policed effectively, then a new cultural change can still be effected – albeit over time.  But this is not the time to soften the stance – it sends the wrong message. Culture has to change from within, and the regulators must provide not just the framework to change, but the confidence and inspiration.

Moving on
The FCA’s new plans to examine banks’ culture on an individual basis may not be such a bad idea. While some banks need careful watching, others have upheld their clients’ interests, and not mis-sold or manipulated. One size does not necessarily fit all. But the FCA needs to move swiftly in order to regain credibility and its perceived independence, and the announcement of Andrew Bailey as the new CEO is a welcome step in the right direction – the time for effective leadership is now.