Vocational Banking: How can we restore trust and confidence in financial services?

29^th May 2015

It’s commonly held that business ethics begin where the law ends. But as we argued in our Virtuous Banking report last year, ordinary people are far from convinced that this applies to banking. So how can we restore trust and confidence in the industry?

It was this question that speakers addressed during our breakfast session co-hosted by CivilisedInvestments, who will soon become CivilisedBank, and ResPublica in the heart of the city. The event featured a keynote speech from Martin Wheatley, Chief Executive of the Financial Conduct Authority (FCA), before a panel discussion between Christopher Jolly of CivilisedBank, Sharon Bowles of the London Stock Exchange, Alison Cottrell of the Banking Standards Board and our director Phillip Blond.

In his keynote, Martin Wheatley emphasised the lack of easy answers or quick fixes. Addressing trust and confidence was a commercial imperative for banks, he said. But how could this be achieved?

In different ways, each speaker emphasised the limits of the focus of current policy, which has been on tightening up the regulatory regime. One change Wheatley discussed was the Senior Manager Regime (SMR), which will come into effect next March. It will allow regulators to fine individuals for misconduct – such as rigging foreign exchange markets – in addition to the banks themselves. 

We heard that, with the introduction of the SMR, the FCA was shifting its focus to middle management in order to bridge the gap between boards and staff. Economic Intelligence Unit research has shown “ethical flexibility” is an important quality for middle managers who want to progress – something Wheatley referenced. However, he warned that cultural change can take 18 months at each level of management – and real change would take a generation.

But after his speech in his exchange with our director Phillip Blond, it was clear that Wheatley and the FCA see a focus on rules alone as insufficient. It was interesting to hear Wheatley say that this approach in itself “will not solve anything”. So what is the solution? Bankers needed to act with integrity, he said. 

This was also a key point of agreement between our speakers during the panel discussion that followed: regulatory reforms like the SMR are not alone sufficient to deliver cultural change within banks and improve public confidence in them. 

Sharon Bowles pointed out that this is a simpler task where staff are customer-facing. Alison Cottrell argued that career progression needed to be much more closely linked to ethical behaviour. And Wheatley stressed that neither policy-makers nor regulators can prescribe a set of steps for particular bank employees to take. If policy-makers cannot bring about culture change through regulation, what non-regulatory steps can be taken to deliver trust and confidence in banking?

The input on this issue from Christopher Jolly was particularly interesting. CivilisedBank, of which he is chairman, is a challenger bank. He said the bank wanted pride to be “embedded in banking getting the culture right from the ground up”. How would it do this?

Yesterday, CivilisedBank announced a key part of their strategy: the adoption of the Banker’s Oath. The Oath, as proposed in our Virtuous Banking report, is an important part of their partnership model as it will empower their employees to act ethically – meeting obligations not just to customers but to their families, the market and society as a whole. CivilisedBank is the first UK bank to adopt the Oath, and in doing have taken an important step towards real cultural and behavioural change in the financial services sector. 

The decision was welcomed by Alison Cottrell because it was about “making banks trustworthy, not about getting customers to trust their banks”. What was the FCA’s view of the Oath, now that CivilisedBank had become the first UK bank to adopt it? Its CEO was clear in commending the bank’s decision. Although there are no quick and easy fixes to issues of individual and collective accountability in the financial sector, the Oath would be a “significant step forward” if the industry integrates it into their culture. 

For more information and reaction to this event, click here

To find out more about CivilisedBank, please visit their website