Are there brighter times in banking ahead?

Wherever you turn, from the FCA’s website to national and business media, the issue of mis-selling continues to linger around the industry. New City Agenda’s annual study into banks’ progress towards embedding cultural change highlights that the total cost of mis-selling scandals has increased to almost £53 billion. With a total cost of £37.3 billion, PPI alone has cost the industry four times more than the London 2012 Olympics.

As the figure continues to rise, retail banking may not be at the end of the mis-selling era. Without stronger controls and culture change to ensure poor conduct does not prevail, the industry risks failing to learn from the same mistakes.

Culture change within a bank with multiple locations, thousands of employees and embedded behaviours is a significant undertaking. Customer centricity, policies and strategies are not enough if the organisation does not live and breathe the new culture. Eliminating residual embedded behaviours in a large organisation may take years or decades. Although positive steps are being taken, the industry is a long way from seeing those measures dramatically reduce mis-selling and other consequences of poor conduct.

Is financial advice still a risk?

Financial advice offered by banks was one of the primary sources of poor conduct issues. As compliance costs increased, banks largely withdrew from the advice market. However, conduct issues may resurface if banks return to advice.

When developing a full advice proposition, banks will need to balance offering a service priced appropriately for the market with covering the compliance costs of administering it. With its focus on making compliance more efficient and cost-effective, Recordsure could help banks make a competitive return to advice.

Robo-advice, hailed as the advice solution for all areas of the market, could become the root of another mis-selling scandal if the service inappropriately strays into advice. The FCA is expected to keep a close watch on the robo-advice market through Project Innovate and the Regulatory Sandbox, reducing the likelihood of poor consumer outcomes.

Despite this, the product that has been most financially damaging to the industry, PPI, was non-advised. The blame and future risk therefore cannot simply sit with advice.

Where do shareholders come in?

It is important to move away from the idea that mis-selling scandals belong to the past. The threat remains, and shareholders should take stronger action to promote process, governance and cultural improvements that may have contributed to historical mis-selling issues.

Shareholders can start by making sure the right questions are asked. Questions about measures to prevent future mis-selling and the cultural drivers behind conduct can build a clearer picture of a bank’s internal culture than headline figures alone. Armed with that knowledge, shareholders can use their position to champion positive cultural initiatives.

Culture change remains unfinished

Banks and the regulator are making important inroads into culture change despite continuing mis-selling headlines. Unless underlying cultural and control issues are addressed, they will continue to affect financial services. Rectifying poor behaviours of the past will require significant time, tenacity and resources, and may continue into the rest of the decade and perhaps the next.

Recordsure can help firms save time and reduce compliance costs through its solution.