THE banks really do get it. They know culture needs to change.”
This was Simon Culhane, of the Chartered Institute of Securities & Investment, in Scotland on Sunday two weeks ago. It’s an argument we’ve heard several times over the years, and a reminder of the William James quote: “There is nothing so absurd that it cannot be believed as truth if repeated often enough.”.
Royal Bank of Scotland last week sought to clear the path to its share sale by getting more bad news out of the way. That includes £1.5 billion set aside for a US court case relating to the mis-selling of mortgage-backed securities and another £500 million for PPI mis-selling redress.
Santander has also set aside a further £450m for PPI compensation, and others will follow.
They’ll soon face a surge of complaints when the regulator bows to their wishes and sets a deadline on PPI complaints, likely to take effect next year. They’re also braced for more complaints on the back of the Plevin court ruling, under which banks must compensate policyholders for hidden commission charges on PPI premiums.
The mis-selling scandals have dried up a little, largely because they stopped doing mass market investment advice in 2013. That came on the back of new rules and standards. It was also linked to the fines they’ll have kept on getting if they continued with investment advice. Santander and Lloyds were particularly culpable.
In 2014 the latter was forced to set aside £225m to cover redress for investment and pension mis-selling in 2011. In 2013 it was whacked with a £28m fine for creating a “culture of mis-selling” through its incentive scheme. Santander was fined £12.4m in 2013 for serious failings in investment advice the previous year.
The dates are relevant. In 2011, 2012, 2013 and 2014 the banks were all insistent that they “got it”, to return to Culhane’s phrase. Anyone who believed them was deluded. So why believe them now? There’s no evidence to support their claim.
It’s unfortunate, therefore, that Culhane’s words were in line with the prevailing mood. A review of banking culture by the Financial Conduct Authority (FCA) was ditched late last year, presumably at the behest of the Treasury. Last week it was announced that Andrew Bailey, head of the Prudential Regulatory Authority, will replace Martin Wheatley as chief executive of the FCA.
Wheatley wasn’t sufficiently nice to the banks for the Treasury’s liking. Bailey might not be either, but with a background in the Bank of England he’s more comfortable with the City than the consumer.
Over the coming months the banks will resume offering investment advice to their customers. The same banks that couldn’t do so before without mis-selling are apparently more trustworthy now.
Maybe they are, and realise they can’t afford to get it wrong again. Their new approach will incorporate so-called robo-advice, the automated technology where questionnaires are used to establish investors’ appetite for risk and generate personalised recommendations.
But there are significant risks in the nascent technology and, especially, in a short-termist banking culture that remains a long way from being reformed.