Tag Archives: Regulatory Risk

Changing banking culture in 4 tangible steps

This past week five banks – HSBC, Royal Bank of Scotland, Swiss bank UBS and US banks JP Morgan Chase and Citibank – have been collectively fined £2bn by regulators in the UK and USA for traders’ attempts to manipulate foreign exchange rates. It is also expected Barclays will be fined in a separate investigation which is currently ongoing.

The UK’s Financial Conduct Authority (FCA) and US regulator, Commodity Futures Trading Commission (CFTC) issued the fines.

These fines come after a year-long investigation into claims that the foreign exchange market, where banks and other financial firms buy and sell currencies between one another, was being rigged.

Martin Wheatley from the FCA said the banks have “let down public trust” and “the individuals themselves will face consequences.”


It’s also been reported that several senior traders at the banks have been put on leave as the Serious Fraud Office prepares potential criminal charges against those behind the scheme.

This news comes after a long list of banking scandals and fines over the past couple of years. Perhaps what is shocking however, is that despite the uproar over the part banks played in the financial crisis and the fallout that has meant much closer scrutiny and governance –little seems to be stopping bankers behaving in similar risky ways as before the financial crisis.


An interview with former chancellor of the exchequer, MP Alistair Darling in 2011 by the BBC[i], three years after the financial crisis highlighted Mr Darling’s “absolute astonishment” he felt when he asked Britain’s largest banks to account for the risks contained in their businesses – and they were unable to come up with a coherent answer. The reporter hits the nail on the head when he says “this total lack of knowledge – couple with the hubris of profit-taking built on lax credit – went to the heart of the financial crisis.”

Banks seem to still remain in the dark as to where their People Risk and reputational risk lies.

There is a clear lack of transparency about how certain individuals behave or are likely to behave, seemingly allowing ‘rogue’ bankers to get away with partaking in activities which may be deemed acceptable by the long lasting banking culture, but are not correct nor morale and lead to mistakes ostensibly intentional or not.

This culture within banks is what is allowing such behaviour to continue to go unchecked and realistically, nothing will change unless the sector makes steps towards ridding itself of its so called ‘toxic culture’ of greed, excessive risk taking and bad decision making.

Moving forward

Steps can be made right now, the sector would benefit from having measures in place that provide them a level of visibility across their organisation and transparency of the exhibited behaviours and likely behaviours, the existing culture, the likeliness of individuals following process and whether a process itself is no longer correct.

Within the industry itself, there have been steps to improve banking standards and tighten up governance with increased regulation. The Banking Standards Review Council (BSRC) was also established this year and received the full backing of Mark Carney, governor of the Bank of England.


The BSRC aims to improve banking standards by identifying and encouraging good practice in learning, development and leadership, with a particular focus on behaviour and ethics. However with the global complexity of the banking sector this is expected to take years.

The FCA and PRA have also commissioned consultation papers for ‘accountability’ in banking, proposing senior managers must take further responsibility of their actions, but questions are being raised about how this can be implemented.


For things to change and for banks to win back consumer trust and repair damaged reputations all banks and bankers must first be open to change and make that clear. They must be determined to review and change their culture for the better and to gain a much better understanding of how their employees think, act and behave at work.

But first they must define for themselves what a better culture looks like, what behaviours they would like their staff to exhibit, what ‘correct’ process and procedure looks like and gaining buy-in across all levels of the organisation. What we don’t want to see now is banks becoming too risk averse, which we have seen in parts throughout the year, as risk plays a role in all business decisions and quite prominently in the banking industry, we need to establish a balance.


Steps banks can take right now:

1. Invest in a cultural survey which provides a ‘baseline’ of the current cultural norms and understand how individuals truly behave, conform to processes and understand their roles.

2. Review existing training, comms, processes to review if, how and where they match cultural aspirations.

3. Audit training and comms to understand why despite continual training, review, and refreshers, ‘it’s not sticking’, even if inroads to embedding a new culture have been identified and implemented.

4. Evaluate these findings and map interventions to each individual’s specific needs which help the senior management team and executives add a level of transparency and visibility around what their people know and understand and how they are likely to behave so they can PRE-EMPT problems such as this one arising in future.


Only with this knowledge and transparency will banks be able to make lasting changes to their working culture, find a balance between risk aversion and excessive risk taking and, become institutions we can be proud of.


[i] http://www.bbc.co.uk/news/business-29982178

Tesco ridiculed by worst crisis in its 95-year old history

Tesco was once the darling of the high street but now the 95-year old supermarket chain is facing its worse crisis ever as it admitted this week to inflating its accounts by £250 million. This wiped more than £2 billion off its market value, saw shares drop by 40% and put them at the bottom of the FTSE 100.

As a result, four senior executives have been suspended, including finance director, Carl Rogberg, with UK managing director Chris Bush also thought to be one of the four, whilst an investigation takes place into what has been going on. Questions will also be asked of former chief executive, Philip Clarke, and Laurie McIlwee, the chief financial officer who left last week.



Tesco said it discovered the overstatement of its figures, made as part of an August 29 profit warning, during its final preparations for its forthcoming interim results. It then announced that full-year trading profits could be as low as £2.4billion – some £400million lower than expected – after ‘challenging trading conditions’.

The supermarket has been losing ground since its first profit warning in 20 years back in January 2012, a year after Chief Executive, Sir Terry Leahy stepped down after 14 years in charge. During his time at the helm he saw a leap in pre-tax profits from £750 million on 1997 to £3.4 billion in April 2010. Philip Clarke took over from Sir Leahy, but stepped down from the board on 1st October 2014 after failing to turnaround the retail giant’s fortunes and was replaced by Unilever executive Dave Lewis.


Whilst an investigation will reveal what has been going on over the past few years, with questions answered and possibly charges brought against individuals if they have been found to have acted unlawfully, the reputational damage has already been done.

The trusted brand image Tesco has built up over almost 100-years is now being ridiculed. The papers have reported on the enormous number of tweets that people have made who are almost gleeful to see such a large retail brand brought to its knees.


This type of crisis is far more than a crisis of share price, company value and profits. Tesco is large enough to overcome these in the short term. Unfortunately, to many of their customers they will now be perceived as a supermarket brand that can’t be trusted. People vote with their feet and supermarkets such as Asda, Sainsbury’s, Aldi and Lidl are winning more and more customers, who are choosing them because of brand reputation.

Whether its budget brands such as with the likes of Aldi and Lidl, who have seen huge growth since the recession or a family-friendly brand like Sainsbury’s who trades on its quality food for great value image.


Customers are fickle and with so much competition in the supermarket sector, it’s going to be a tough job for Tesco to regain its position as top of the supermarket chains.

Tesco has needed to give its brand image a facelift for many years, but this latest crisis will make it a long hard slog to win back customers who have deserted them and get back the brand reputation they once had.