Culture is Key for Australian and New Zealand Banks
Conduct and culture is the new hot topic. But what does it really mean? And more importantly what does it mean in practice?
How to respond to the Australian Bank Royal Commission and New Zealand FMA and RBNZ Conduct and Culture Reports
The Australian royal commission into misconduct in the banking, superannuation and financial services industry will reshape the financial services industry on both sides of the Tasman for years to come.
The highly anticipated final Royal Commission report has made a series of structural recommendations to address issues of conduct, commissions and incentives and a lack of consumer focus. Governments in both Australia and New Zealand are currently reviewing all 76 recommendations that span banking, superannuation, insurance and financial advice sectors and are expected to outline in the coming weeks how the recommendations might be implemented. In addition, in the wake of the Royal Commission, ASIC has revealed it’s contemplating more than 40 court cases — including criminal prosecutions. More sobering for many FI’s will be the announcement that ASIC has now adopted a new approach that emphasises court-based enforcement.
In addition, in New Zealand, the FMA and RBNZ have released their report on bank conduct and culture. The regulators identified significant weaknesses in the governance and management of conduct risks. These weaknesses have resulted in several issues that require remediation. Banks have also received individual feedback and have been requested to provide plans to address the regulator’s feedback by the end of March 2019.
And more recently in late January, the FMA and RBNZ also released a report on life insurer conduct and culture in New Zealand. The regulators found extensive weaknesses in life insurers’ systems and controls, with weak governance and management of conduct risks across the sector and a lack of focus on good customer outcomes.
Culture is Key
At the core of all these issues is Culture. It is widely acknowledged that financial institutions must change their culture if they are to address many of the issues identified in the various reports – and whilst many FI’s are expressing a positive shift in their view of the importance of culture there is much to be done.
In this climate, it is tempting to equate culture with practices that just promote ethical behaviour. But a healthy culture encompasses far more. It not only minimises bad conduct but also aligns behaviour with the FI’s strategy and can, when done well, support accelerated performance.
Understandably, Boards, CEO’s across Australia and NZ financial services industry are viewing such comprehensive culture change as daunting. It is complex; it has many moving parts; and for large institutions, it involves thousands of employees many of which are located across their distributed branch networks. Most challenging of all, it’s not just about changing policies and processes; it’s about changing peoples’ mindsets and behaviours. But if the culture is to be sustainable to delivering good customer outcomes, the effort must be broad, aligned and it must go deep. It must be broad in the sense that it reaches across businesses, functions, geographies, and all levels of the organisation to align its public purpose, values, strategy and incentives etc. It must be deep in the sense that it reaches down to the fundamental assumptions, beliefs, and motivations of each individual so that employees personally embrace the new culture and live it daily.
Visibility Drives Behaviours
It is generally understood managing culture is not a one-off event, but a continuous and ongoing effort that must be integrated into day-to-day business operations. Furthermore, it requires a multipronged approach and the continued alignment of multiple levers, including structural elements such as processes and policies, as well as human elements such as beliefs and attitudes.
Below is a framework how leading FI’s are using the SeeEverything platform to align and embed their culture into their day to day business and what other FI’s can learn from them.
Staff Capability drive the right behaviours, culture, conduct and performance
It imperative that organisations have an ongoing focus at all levels to improve staff capabilities - a consistent “customer-first” mind-set—including a continued focus on ethics driven not by fear but by a clear purpose. This requires embedding culture awareness and stewardship at all levels of the organization, with a particular focus on middle management and frontline businesses. This needs to be a permanent and integral part of how business is conducted.
Colleagues are coached and rewarded to serve customers well and deliver good customer outcomes and people leaders have real-time visibility and transparency across the organisation to understand what is going on.
A key component will be the ability to capture and track agreed staff goals and actions and monitor individual progress and commitments.
Performance Management and Incentives
Many FI’s have now removed sales-focused incentives for frontline staff, opting instead for alternative metrics integrated into a balanced scorecard. These typically include capturing quality of customer service, product knowledge staff offered, alignment of values and personal conduct that deliver good customer outcomes, with the ability to evaluate both the “what” and the “how”. Organisations need to track and monitor these new metrics through ongoing observations and coaching interventions.
Day to day coaching and observations need to be linked to the broader performance management conducted.
Colleagues are coached and rewarded to serve customers well and deliver good customer outcomes and people leaders have real-time visibility and transparency across the organisation to understand what is going on.
Regular check-ins as part of your performance management framework allows people managers to align ongoing coaching & observations activities.
Governance
Effective governance remains a top focus for regulators, with new requirements to capture end-to-end customer interactions with evidence of discharging all compliance obligations.
Regulators are signalling a new age of governance and accountability - through Board effectiveness, as well as new regulations that specifically focus on behavioural controls and ongoing second-line oversight of conduct and culture risks. This mean the ability to:
Observe real-time interactions “what actually happens?”
Capture (with evidence) all issues and breaches with detailed corrective actions
Dynamic controls linked to activities - Capturing commitments and organisations responsiveness
These higher expectations call for an alignment of governance and control frameworks, coupled with effective use of real-time data to precisely and consistently capture execution of controls. This will allow for top-down integration, end-to-end visibility, internal comparability and continuous compliance and QA improvements including people accountability and behaviours.
Capturing Customer Needs
Leading FI’s are redesigning their ‘customer conversations’ with customer interests at the heart of their interaction.
This means:
Ensuring that products and services that are recommended and sold align and meet the needs of the customer
Where a customer receives advice, the advice is genuinely suitable and takes account of their needs identified and circumstances
Customers understand what they are buying and are provided with clear information and are kept appropriately informed before, during and after the sale process
Customers are provided with products and services that perform as the FI has led them to expect
The FI is able to track the disbursements of all regulatory compliance obligations as part of the customer conversation.
For more information about how SeeEverything can help embed your conduct and culture framework
email info@seeeverything.com
or visit www.seeeverything.com