Almost eight years on from the collapse and bail-out of HBOS, Britain’s financial sector is still the subject of much hand-wringing. While three different governments have all passed new rules to reform the way that banks operate in the hope of avoiding similar catastrophe in the future, most people seem to agree the root of the problem – a culture frequently referred to as 'toxic' – remains much the same as it was.
That includes Kwekyu Adoboli, the rogue trader who was sentenced to seven years in prison in 2012 after losing £1.4bn while working at UBS. No doubt keen to recast himself as a rehabilitated expert in the same vain as Nick Leeson and the Wolf of Wall Street’s Jordan Belfort, he’s now a free man and has been doing the rounds warning that what happened to him could easily occur again as traders are still ‘struggling with the same...pressures to achieve no matter what.’
‘It goes back to the structure of the industry,’ he told the BBC. ‘People are required to take risk to generate profit, because yields in the industry are consistently compressed. And if investment banks continue to chase the same level of profitability as they have in the past, the only way to generate those profits is to take more risk.’ As a result, he suggests, they end up in a semi-legal ‘grey zone.’
It’s not just investment banking where the problem lies of course. Banks are still having to set aside vast amounts of cash for PPI redress and other misdeeds in their retail arms. While some have made great leaps and bounds in customer service, a lack of competition and perceived difficulty in changing accounts still leaves the impression that bankers are more preoccupied with enriching themselves than with serving their account holders.
But what’s to be done? Changing structures and systems is one thing, but changing mindsets is quite another. Despite saying he learned from the experience, Adoboli suggests that he's ‘not entirely sure blame and sending people to prison is the answer.’ It’s not clear what he thinks is, though.
And to be fair, he’s not the only one. As the FT noted at the time, the Banking Standards Board’s initial annual review, published in March, had more questions than answers. It identified six key areas of interest – purpose, culture, leadership, incentives, ability of people to speak up and training – but it’s clearly still a long way from bringing about any meaningful change. Another report into banker culture that had been proposed by the Financial Conduct Authority was shelved in January.
Several banks have commissioned far-reaching reviews of their own culture, but there are few signs these have had any great impact. Earlier this year the Financial Services Consumer Panel, which reports to the FCA, said that bank bosses were ‘making the right noises’ about culture change, but that this wasn’t ‘filtering through to the frontline’.
One of its proposed remedies was the introduction of a ‘duty of care’ for those working in financial services to always act in the best interests of their customer. That sounds promising in principle, but there’s a danger it could make the industry less competitive. Now that we face great uncertainty about the economy, and in particular financial companies' ability to access European markets, expect regulators to tread even more lightly.
In 2014 the New City Agenda think tank suggested it would take the financial sector ‘a generation to completely overhaul its culture and practices’. Based on what has happened in the 18 months since then that actually looks pretty optimistic.
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