Alexander Burgess is a director at British Money
Years ago, working in the financial services sector was something to be proud of; it was considered a ‘safe pair of hands’ by the millions of consumers who relied on it for their everyday financial transactions, protection and savings needs.
I, along with many others, aspired to work in this most ethical and professional sector.
Companies built their foundations upon prudent and sound risk management principles.
Insurance and banking providers were seen as highly ethical and keen ‘to do the right thing by their customers’. These fundamentals, however, appear to be sadly lacking today.
Over the last decade, both insurance and banking ‘giants’ have suffered reputationally; their mis-selling of endowments and PPI caused catastrophic brand damage and the pension annuity debacle is yet to reach its peak. This, however, pales in comparison to the monumental financial melt-down and subsequent global recession, caused by mismanagement of funds and short-sightedness of many institutional lenders.
In order to re-build trust amongst consumers and so, counter widespread criticism that ‘the banks put the world into financial ruin’, you’d think their governance, protocols and processes would be under strict scrutiny. Not so, it seems.
Since the ‘melt-down’ we’ve witnessed exchange and interest rate rigging, Libor misdemeanours and sharp business loan practices and now, unbelievably, the exposure of the Co-op bank’s former Chairman, the Reverend Paul Flowers, as a buyer and user of illegal drugs.
Yet again, the ethics of an institutional lender has been called into question.
In October 2012, the then FSA voiced concerns about the management skills of the Co-op bank’s Board and its lack of capital to purchase 600 Lloyds branches. Last month the bank blamed its £1.5bn capital shortfall on its 2009 takeover of the Britannia Building Society and US Hedge Fund managers were called in as part of a rescue deal. Consumers at this stage questioned the Co-op’s ethical credentials.
And the alarm bells continued to ring louder when earlier in November, Paul Flowers demonstrated his limited bank experience after quoting inaccurate asset figures to the Commons Treasury Committee. As well as appearing to have a penchant for drugs, the Reverend Flowers resigned two years earlier as a Bradford Councillor amidst controversy over ‘inappropriate but not illegal’ images on a computer that went in for servicing. What happened to the stricter protocols and due diligence promised by so many?
In a bid to regain ground, Co-op Chairman Len Warde resigned, stating he led the Board that appointed Flowers, and now incoming Chairman Ursula Lidbetter says the bank will review its governance. How many more scandals does the banking industry need before it will begin to follow the risk management and ethical principles used to build the business in the first place?
Bankers, and to some extent, insurers need to go back to their heritage basics and adopt a more prudent approach across their whole business; from recruitment, staff management and product development, to that all-important, yet often-overlooked, consumer.