Name A professional banker? Behavioural change and conduct costsDate 2014-02-13 00:00:00 +0000Text
Lead Research Analyst, Conduct Costs Project, LSE
and Candidate for PhD, Institute of Advanced Legal Studies
The disparate backgrounds, interests and incentives evident amongst individuals working within global financial institutions will cause the greatest difficulty in engineering an appropriate culture or more specifically, controlling behaviour and promoting 'good' outcomes. It is precisely this issue, being a product of consolidation and growth (geographically, in speciality and in complexity) of banks over the past couple decades that has lead one commentator to observe that “there is no such thing as the banking profession” (John Gapper, Financial Times 13 February 2014).
An appropriate culture can have an influence, but (and equally in regard to a code of conduct) it is without teeth unless individuals fear the cost of misconduct (or a poor customer outcome) more than they stand to gain from the potential benefit. Human beings rarely act altruistically. Incentives drive positive behaviour. At its simplest, 'expectation' (of internal and external clients) should meet with 'obligation' - requiring a fiduciary duty has been meted out as a means to achieve this (although the efficacy of imposing a fiduciary standard, in certain relationships, must be questioned).
One must also consider the corollary of positive behaviour, that is avoiding bad behaviour. This is where we must also focus our efforts: increasing the cost of pursuing self-interest at the expense of the client or in violation of the spirit (as well as the letter) of the law. Principles and enforcement work well and efforts to militate the moral hazard resulting from vicarious liability etc are making good headway.
The Banking Standards Review consultation paper sets out a vision to hold banks (and individuals) to account on the basis of both conduct and competence. The mission will dovetail with the objectives of the regulators; and regulatory synergy in this regard is essential. For us at the CC Project, we believe that the BSR's intention to benchmark banks' conduct performance is given its due weight, although, we would emphasise, that surveys, interviews, codes of conduct and internal reports, while providing some qualitative feedback, will be no substitute for the 'story' objectively told by a banks conduct costs over time.