Banks need a generation to change culture, report says
It will take British retail banks a generation to change the aggressive sales culture which has provoked a string of mis-selling scandals and cost the industry £38.5bn so far in fines and compensation, a report published on Wednesday said.
The study by the New City Agenda think-tank and Cass Business School concludes that messages from top banking executives about cultural change are still not reaching many frontline staff.
After talking to dozens of bank executives, investors, regulators and employees, the authors concluded: “Despite significant changes in recent years, the performance of the banks across a range of dimensions is relatively poor. It is not unlikely that more bad news will come to light.”
Pointing to a sharp rise in complaints about banks to the Financial Ombudsman Service from 75,000 in 2008-09 to more than 400,000 in 2013-14, the report says banks have a lot still to do.
“Cultural change initiatives, particularly in the large institutions, remain relatively fragile,” it adds. “Senior leaders are committed to these initiatives, and progress has been made. However, there is widespread concern that the message could get lost in the middle of these large institutions . . . Some customer-facing employees told us they still feel under significant pressure to sell”.
The report, whose main author was Professor Andre Spicer of the Cass, concedes that most big lenders have ended the sales-based bonuses that were widely blamed for scandals. These included the mis-selling of payment protection insurance, which has cost the industry more than £22bn.
Antony Jenkins, chief executive of Barclays, has staked his reputation on reforming the culture of the scandal-plagued bank. He told the Financial Times that it had “completely overhauled the way performance . . . is measured and how people are incentivised and nobody is paid to sell anything in the branches any more”.
“They are assessed on how they serve customers” added Mr Jenkins, who took over from Bob Diamond in 2012 after the bank was fined over the Libor interest rate manipulation scandal.
The Barclays chief executive added: “We have developed a system at Barclays to measure both what people have to deliver – based on our balanced scorecard – and how they deliver it. Overall compensation is a composite of the two and importantly if someone achieves their goals but does it in way that is not compatible with our culture then they will fail to hit their target.”
The industry continues to face calls to clean up its act after Royal Bank of Scotland, Citigroup, HSBC, JPMorgan Chase, Bank of America and UBS were fined a total of $4.3bn by UK, US and Swiss regulators for their role in manipulating foreign exchange markets. Barclays and several other banks are still being investigated over the global forex scandal, whose consequences were not assessed in the Cass report, which focused on retail banking.
Justin Welby, Archbishop of Canterbury and board member of New City Agenda, said: “Much more needs to be done by all stakeholders for trust to be restored in our financial institutions.” The forex fines “illustrate the length of the journey of culture change that still needs to be travelled”.
The report called on the Banking Standards Review Council, which was created last year to revamp banker conduct, to take a leading role in measuring and publishing annual reports charting the progress of cultural change in banks.
In particular, Mr Spicer at Cass said banks should copy the way that the oil and gas industry rewards whistleblowers. But he admitted that an aggressive sales culture is deeply ingrained in banks. “For people who have benefited and been rewarded by moving through the ranks for hitting sales targets – it is very hard to change that culture.”