The new “conduct” mantra to spread slowly
As a consulting firm helping banks and insurance companies to transform selves, we observe the new “conduct” mantra to spread slowly. In itself it is one of the most difficult shifts in gear for our clients.
For those not familiar with the issue, and to make it too simple: “conduct” could defined as the contrary of “misconduct”. British banks paid already close to 25 billion in fines being accused, for example, of misselling products like PPI to customers who didn´t need it, some French banks are under scrutiny for selling complex leveraged credits to municipalities, some Nordic banks are prosecuted for selling mortgages with rates based on foreign currencies creditors didn´t really understood.
In the UK, the regulatory authorities are now two, one for the Financial soundness, the Prudential Regulatory Authority (PRA) and the second one is the Financial Conduct authority (FCA). It could be summarized in three points, although there are far more details and subtleties:
The CEO of one of top 5 banks in Europe explains it bluntly: “since our inception, we strive to maximize the value of our client for the bank, now we have to demonstrate to the regulators that we maximize the value of the bank for our customers”. The FCA insists: “”Essentially, we will be looking for firms to base their business model, their culture, and how they run the business, on a foundation of fair treatment of customers…”
For our clients, the deep change is like a DNA transformation because it would need to ask themselves constantly: “Are the interests of customers and market integrity at the heart of how the firm is run?”
Needless to say, that the implications are profound on all the way a firm is managed, notably, on the governance and culture, on the compensation schemes, on the sales processes, on the product designs, on the post sales and transaction handling.
Beyond the regulatory and digital landslides, the “conduct” wave epitomizes the requirement to put really the client at the heart of banks and insurance companies.
A difficult transformation?