When banking fails vulnerable customersWednesday, January 23, 2019
In 2016, the Financial Conduct Authority (FCA) published a comprehensive review of the UK banking culture, focused on whether pay, promotions or any other types of incentives in the banking sector encourage malpractice. The results showcased that every banking business is different and, thus, is not easily compared. Despite this, it was vastly believed that this was a U-turn by the FCA to investigate the behaviour that may well have been a major – if not the major – cause of the financial crisis and further banking scandals since 2008
Culture is one of the most important aspects of a services organisation. It is all about how people behave when they are not being watched. When it comes to the banking sector, culture is not about the numbers or money-making algorithms behind closed doors. It is about how to create and enhance trust between the banking institution and the customers, the central banks, the markets.
When big UK banking institutions are involved in scandals like Payment Protection Insurance (PPI), consumers lose that trust to the banking system, seeing their hard earned money being taken away to the bankers’ advantage. Giving loans to customers that, based on internal modelling, cannot afford to repay or are more likely to not afford them in the first place, is risky. And when the banks cultivate a “high-risk, high-reward” culture the organisational culture becomes deceitful and rotten.
Consumers have suffered dramatically from financial misconduct in the past decade – from the RBS and Lloyds bailout to the rigging of bank lending rates and the £34bn in compensation owed from the mis-selling of PPI. During this time, there has been little progress to improve the UK’s banking culture, as stated during a treasury committee hearing by the Banking Standards Board (BSB), the body that was born to be monitoring the UK banking sector to avoid future disastrous outrage like the HSBC money-laundering and Libor-rigging scandals.
The slow progress was questioned by many, especially by the Labour MP John Mann who criticized BSB stating that they were “simply tinkering on the sidelines rather than dealing with the fundamental issue which is the fundamental frauds, manipulations within this sector”. The news comes not long after the RBS internal whistleblowing claims. The FCA will investigate whether customers were suitable to purchase investment products such as stocks and shares.
There are many mis-sold PPI horror stories out there. They will keep on coming to the surface, even after the PPI deadline that the FCA set for the 29th August 2019. The UK banking system needs to implement an internal cultural change to prevent future financial scandals whilst protecting vulnerable consumers with suitable financial insurance covers.
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