The UK financial services sector needs a cultural shift if it is to leave behind the repeated failures and scandals of the last decade, says a top official from the Financial Conduct Authority (FCA).
Tracey McDermott, director of enforcement and financial crime for the UK regulator, said traders caught up in the foreign exchange market scandal for which banks were fined £2 billion last month ‘did not do so in a vacuum’.
Speaking at the FCA’s enforcement conference in London she said the fines showed the industry is ‘some way short of the corner that needs to be turned.’ She argued that misconduct is not the result of rogue individuals but evidence of ‘deeper and wider’ issues.
“While some individuals went too far they did not do so in a vacuum. The traders involved in these incidents knew what they were doing was wrong. They did it because they operated in a culture in which they believed, at best, that poor behaviour would be excused by the results for the firm and for them individually. At worst, they would be rewarded by the firm and their peers – in terms of both financial reward and status.”
She acknowledged that lessons are being learned ‘albeit slowly and from the top down’, but she also warned: “Unless this becomes part of the DNA of firms, unless the front line owns this change and buys into it, it won’t happen – no matter how many fine words there are from those at the top and no matter how many thousands of compliance staff you employ.”
She likened the necessary cultural shift to the change in public attitudes to drink driving. In the past it was avoided only through fear or being fined and losing your licence, but it is now seen as ‘a moral issue’ because people have been forced to focus on the impact it could have on other people’s lives.
“So the interesting challenge is how do we move from needing ‘a cop on every corner’ to a world where people more often make the right decision instinctively because they believe that this is what is valued by their peers, their colleagues and their firms and because they will be ostracized if they don’t,” she added.
Her views on culture change were echoed by the New City Agenda think tank who say in a report into the UK banking industry: “A toxic culture, decades in the making, will take a generation to clean up.”
The report continues: “Some frontline staff told us they still feel under significant pressure to sell. Complaints continue to rise and trust remains extremely low. Most of the people we spoke to believed that real change and, as a consequence, better treatment of customers, will take some time to achieve.”