As reported in City AM:
Why regulation alone may not save our retail banks
Tighter regulation won’t be enough save Britain’s retail banks in the aftermath of the financial crisis, according to experts involved in an investigation into the sector’s decline.
Conducted by the think tank New City Agenda and CASS Business School, the report reveals how the UK’s four main retail banks are continuing to lose customer trust, rather than gradually regaining it.
From 2008 to the first half of 2014, the Financial Ombudsman received a total of 20.8m complaints about high street bank services, and this increased from 75,000 in 2008/2009 to 400,000 in 2013/2014.
The ongoing scandals are doing nothing to help build the public’s confidence, either – earlier this month, five UK banks were slapped with hefty fines for their involvement in rigging Forex rates. In fact, this general “po or culture” has cost British retail banks and building societies over £38bn in fines and redress for customers over the last 15 years.
And despite the culprits not being directly involved in dealing with customers, frustration is often taken out on employees in high street banks. “Those working on the shop floor are often the subject of customer abuse – they represent a ‘banker’ for people to take out their frustration on”, explained Andre Spicer of the CASS Business school – one of the lead authors of the report.
The results suggest that regulation alone will not be enough to encourage change, since much of the problem stems from an attitudinal shift away from the customer and towards money-making. “It has become clear that having an aggressive sales culture, which ripped off customers, has cost banks dearly,” commented MP David Davis. “Banks seem to be trying to change, and some organisational progress has been made. However, it has yet to deliver for high-street customers.”
The shift stems from when the retail and investment divisions of banks joined together, according to economist John Kay – at that point, “greed became OK,” and it was “acceptable to talk about how much money you were earning”.
“Retail banks used to be profit-generating organisations, but they viewed themselves as organisations embedded in communities. They played a social role, but now there is a transaction and trading based culture in stead of relationships.”
The consensus among those involved in the study is that a culture shift back towards putting customers first is needed for trust to be regained, but that the top down approach currently being adopted – where the heads of banks tell those in the middle and at the bottom to behave more ethically – will not work.
“At the current rate, it will take the entire sector a generation to completely overhaul its culture and practices: the sector is currently dominated by four big banks. Given the current rate of change, a radical overhaul will take a generation,” the report says.
Kay added that you “can’t change culture by making announcements from the top of organisations.”
“What is needed is a complete review of the whole structure of financial services organisations. We need to restructure them and also create new ones, since in some cases the damage caused by the financial crisis is so extensive that it may be irreparable,” he said.
As reported in the Daily Mail:
Toxic Banks Will Take a Generation to Repair
The ‘toxic’ culture of Britain’s banks will take a generation to fix and has cost a staggering £38.5bn in fines and compensation, according to a hard-hitting report.
Backed by the Archbishop of Canterbury and co-founded by former shadow home secretary David Davis, the report said an aggressive sales culture’ took hold over two decades, with staff in some branches receiving cash bonuses, iPods and tickets to Wimbledon for hitting ambitious sales targets.
In one Halifax branch there used to be a weekly cash or cabbages day’, whereby employees who exceeded their sales targets were publicly rewarded with cash, while those who missed their bonuses were humiliated by being given cabbages.
Some 20.8million complaints have been lodged by disgruntled customers since 2006, but banks are increasingly rejecting legitimate disputes and forcing them to go to the Financial Ombudsman Service.
The grim findings emerge as the City watchdog yesterday revealed more details of its probe into the £56.9bn credit card market, amid fears that nine million vulnerable customers are trapped in a spiral of debt. The Financial Conduct Authority said the probe will examine whether charges are clear enough, how easy it is for customers to shop around and whether people are borrowing too much.
The damning report, by think-tank New City Agenda and Cass Business School, argues that recent attempts by the big banks to overhaul their culture remain relatively fragile’, with concerns that the message from senior executives gets lost’ and could ultimately fail to make a difference on the front line’.
It adds: Some customer-facing employees told us they still feel under pressure to sell.’
Davis said: ‘It has become clear that having an aggressive sales culture, which ripped off customers, has cost the banks dearly.
Banks seem to be trying to change, and some organisational approach has been made. However, it has yet to deliver for high street customers. A toxic culture which was decades in the making will take a generation to turn around.’
The report highlights how banks’ aggressive sales culture drove a series of mis-selling scandals, ranging from payment protection insurance to unfair bank charges and endowment mortgages.
A total of £38.5bn in fines and compensation has been paid by banks, stemming from their retail operations alone, since 2000.
It comes as Lloyds faces allegations from a whistleblower that it still fosters a high-pressure sales culture, despite its £28m fine from the City watchdog in December for awarding grand in the hand’ bonuses and bottles of champagne to its most prolific salesmen.
The conduct of banks was also thrown into the spotlight earlier this month when six banks, including Royal Bank of Scotland and HSBC, were fined £2.6bn for rigging foreign currency rates. The wrongdoing continued until October last year.
Archbishop of Canterbury Justin Welby said: The huge fines levied on major banks illustrate the length of the journey of culture change that still needs to be travelled.’