Wherever you turn, from the FCA’s website to national and business media, the issue of mis-selling continues to linger around the industry like an unwanted guest. This is also highlighted by New City Agenda’s annual study into the banks’ progress towards embedding cultural change, which highlights that the total cost of mis-selling scandals have increased to almost £53 billion. With a total cost of £37.3 billion, PPI alone has cost the industry four times more than the cost of the London 2012 Olympics, which is staggering.
Is there a brighter future?
As the figure continues to rise, I believe that we are not at end of retail banking’s era of mis-selling. Without the enhanced controls and culture change required to ensure poor conduct does not prevail, the industry is at risk of not learning from the same mistakes.
Culture change within a bank, with multiple locations, thousands of employees and embedded behaviours is a significant undertaking – one not to be sniffed at. Its all very well spouting buzz-words such as customer centricity and putting in place customer focused policies and strategies but the reality is that making the organisation live and breath a new culture and actually eliminating residual embedded behaviours in an organisation so big will take years, perhaps even decades. Therefore, although some positive measures are being taken to change and improve culture, I believe we are a long way off seeing the results impact dramatically on mis-selling and other unfortunate 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 As a result of increasing compliance costs, the banks have largely withdrawn from the advice market. However, there is a danger that conduct issues may resurface again if the banks return to advice.
On developing a full advice proposition, banks will need to get the right balance between offering a service that is priced right for the market whilst also covering the compliance costs of administering it. With its focus on making compliance more efficient, and therefore cost effective, Recordsure could be ideally placed to assist the banks in a competitive return to advice.
Robo-advice, which has been hailed as the advice solution for all areas of the market, has the potential to be the root of another mis-selling scandal if the service inappropriately strays into advice. Presumably, the FCA will be keeping a close watch on the development of the robo-advice market through Project Innovate and the, soon to be launched, Regulatory Sandbox which should reduce the likelihood of poor consumer outcomes.
Despite the above the product that has been most financially crippling to the industry – PPI – was a non-advised product, so the blame and future risk cannot simply lie with advice.
Where do shareholders come in?
It’s important to move away from the attitude that these mis-selling scandals are a thing of the past. The threat still remains and I agree with New City Agenda that this is the time for shareholders to take stronger action to promote strengthening of processes, governance and cultural issues that may have contributed to the historical mis-selling issues.
So, what can shareholders do? For a start, make sure the right questions are being asked. Questions around the impact of measures to prevent future mis-selling and the underlying cultural drivers can all help build a clearer picture of the bank’s internal culture than the headline figures. Armed with this knowledge, shareholders can use their position by being vocal in their championing of positive cultural initiatives.
It’s important to recognise that the banks and the regulator are making important inroads into culture change, despite the continuing barrage of mis-selling headlines. Unless the underlying cultural and control issues are addressed, they will continue to blight the financial services industry. It will take significant time, tenacity and resources to rectify the poor behaviours of the past and this is likely to continue into the remainder of this decade and perhaps the next.
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