With little sign that the recession is over, trust in the financial sector has reached its nadir, and banks need to take steps to boost their image and reputation. The ICAEW has initiated this process by publishing several reports that address issues about confidence, says Iain Coke, head of the ICAEW’s financial services faculty.
Over five years since the start of the financial crisis, banks seem to have woken up to the need to improve their image. Trust is at an all-time low and no business can be sustainable if it is not seen to be aligned to its customers, especially when dependent on trust and long-term relationships.
If the financial sector is to start restoring trust, there needs to be more than just a PR exercise: a culture to support this must be established, with the twin strands of integrity and competence forming its DNA.
It was inevitable that the crisis would be followed by a period of regulatory upheaval, but real change instigated from within the sector is yet to be seen. The ICAEW set out its ideas on steps the sector can take to address the current problems in its report 'Market failures, market solutions', which was launched on 7 November 2012 at one of its conferences supporting business. This is part of a wider programme that the organisation's financial services faculty set up shortly before the start of the crisis to address issues about confidence in financial services.
Trust has dipped dramatically since then, but the ambition now should go beyond simply returning to pre-crisis levels of confidence.
Banking's all-embracing action
Banks, insurers and investment managers are commercial businesses that provide economically essential services. It is in everyone's interests that they should be able to operate profitably and competitively so that they can properly serve the economy; however, in doing so, neither integrity nor competence should be seen as sources of competitive advantage - they should be the minimum entry requirement expected from all participants.
Recent announcements by banks - for example, Barclays and Deutsche Bank - that they are to do things differently in the future, are welcome; however, no individual institution can change public perception of the sector on its own. At best, it will be more expensive and less effective due to tainting; at worst, it may make matters worse, because it can reinforce negative perceptions.
There is a parallel with political campaigning based on attacking your rivals - it can win votes, but ultimately it leads to loss of trust and engagement with politicians generally.
The whole financial sector needs to work together to rebuild trust. A way forward would be for the financial services sector to invest in developing and promoting an ethical framework that works across institutions, recognises that ethical conflicts are almost inevitable and suggests ways of tackling those conflicts, providing safeguards against perceived threats to integrity.
Institutions need to look at how their organisational structures support ethical decision-making, including how well their incentive structures are aligned to this. Individuals must have the importance of integrity ingrained in them throughout their careers. The ICAEW's 'Market failures, market solutions' paper will propose further steps that can be taken by financial institutions, individually and collectively, to address these and other challenges.
ICAEW's Finance Integrity Network
To further support cultural change, the ICAEW's Finance Integrity Network is designed specifically for banking professionals to develop skills through integrity, engagement, and the implementation of ethical and cultural change within organisations using mentoring, training and action plans.
Regulation can support the objectives of a financial system based on integrity and competence, but it cannot drive it. The industry needs to embrace and lead this, because these are matters based on behaviour - and behaviour needs to be controlled from within. While restoring trust will be a challenge, the ultimate objective should be to have a financial services sector that inspires confidence and serves society's economic needs.