Like most bank bosses, Antonio Horta-Osorio talks a good game. If you’re looking for some warm words about the efforts being made to reform the culture of banking, the Lloyds chief is your man. “We need meaningful changes to the way we work” he said last year, adding that Lloyds staff are “incentivised to provide good customer service rather than sell products”.
It’s curious then, that the Lloyds Trade Union has written to the Financial Conduct Authority (FCA) to raise concerns over the bank’s Minimum Competency Standards, through which staff are being forced to push certain products or risk being removed from their role or, potentially, sacked. The result is that “customers could be at risk of being sold products they don’t need or can’t afford,” the union warned.
Horta-Osorio’s words have a habit of contradicting the firm’s actions. In September 2012 he said banks had focused too much on sales targets and had to change if trust was to be restored. The same week, the regulator warned that an investigation of sales incentives had found “serious failings”. Turns out that Lloyds was one of the main culprits.
But that was then. Now the high street banks “really understand how to treat customers properly”, FCA chairman John Griffiths-Jones has said, while the chief executive of the Chartered Institute for Securities & Investment insists that “the banks really do get it”.
But here’s the problem: even if you believe the industry when it says it wants culture change, is there any way it can be achieved within the existing structures? Both retail and investment banks are fundamentally short-termist. From the obsession with “shareholder value” and the reliance on quarterly performance reports to the targets on which bonuses are based, there’s little incentive to build relationships, trust and real value.
Customers don’t really come into it. Look at the latest round of pay awards. Horta-Osorio’s £8.8 million package for 2015, although down from the previous year, is recognition of a growth in underlying profits and resumption of dividend payments. That’s what he’s primarily judged on. The £117m fine last summer for poor handling of PPI mis-selling complaints barely comes into it.
The culture at the heart of the banking industry is little better than it was a decade ago. If there’s less mis-selling, it’s only because there are fewer products left that can be mis-sold on a sufficiently large scale (although they’re having a good crack at it with packaged current accounts).
That will change once the banks launch the automated services that will let them return to investment “advice” through the back door. Customers will be ripped off and more penalties will eventually be issued, but all that will matter to the bank and its shareholders is that, in the meantime, the margins are decent. And for as long as that’s how it works, customers will come a very distant second, however much those at the top pretend otherwise.