Compliance and risk officers across the U.K. banking sector may want to reevaluate their corporate culture, following this month’s publication of the first-ever annual review by the United Kingdom’s Banking Standards Board.

Established in April 2015, the aim of Banking Standards Board (BSB)—a non-statutory, voluntary membership body open to all banks and building societies—is to help raise standards of behavior across the U.K. banking sector. It was established following a report by the U.K. Parliamentary Commission on Banking Standards. The BSB opened its doors to membership across the sector in January 2016.

The BSB’s inaugural annual review paints a picture of the banking sector—specifically, the degree to which banking culture helps its customers—based on the views of more than 28,000 staff from 22 banks and building societies across the United Kingdom, as well as hundreds more who took part in focus groups and executive and non-executive interviews. Examples of banks that participated include Barclays, Citi, HSBC, Lloyds Banking Group, Morgan Stanley, RBS, Santander U.K., and Standard Chartered.

Many member banks touted the benefits of the landmark benchmark report, including HSBC. “Ten years on from the beginning of the global financial crisis, trust in banks remains the key challenge facing the industry,” said Antonio Simoes, chief executive at HSBC Bank. “The BSB annual review provides an important reference point and a guide for improvement across the sector.”

The BSB review stops short of assessing firms against a template of what a “good” culture looks like. Nor does it set out to measure or rank culture directly.

“Rather, we ask how far each of our nine characteristics is demonstrated by the firm and relative to other firms,” the BSB stated in the report. “We would expect a firm that strongly exhibited our nine characteristics to be better equipped and more likely to serve its customers, members, and clients well than one in which these elements were lacking.”

The nine characteristics against which firms are assessed are honesty, respect, openness, accountability, competence, reliability, responsiveness, personal and organizational resilience, and shared purpose.

“The challenge of creating or maintaining a good culture is not unique to banking, or indeed to the U.K. The consequences of a poor culture in banking are, however, extraordinarily far-reaching, affecting the economy and society as a whole,” said BSB CEO Alison Cottrell. “For the U.K. banking sector, raising standards of behavior and competence is simply not a challenge; it is a responsibility and one that needs to be owned by every bank and building society today.”

“The BSB’s assessment found examples of good practice across the banking sector, but also identified some deep-rooted attitudes and behavior that still need to change,” said Colette Bowe, BSB chairman.

“Responsiveness, accountability, personal resilience, and openness are all areas requiring progress,” Bowe added. “Firms need to speak honestly and bravely about what needs to be done, what they are doing, why they are doing it, and how they will know that they are succeeding.”

One positive finding from the survey showed that 81 percent of employees across all firms agreed that their organization’s purpose and values are meaningful to them. Many focus group participants similarly said that they understood and appreciated the purpose and values of their firm.

Sixty-five percent of respondents agreed that no conflict exists between their firm’s stated values and the way that the firm does business, whereas 14 percent said they do see such a conflict, especially in systemically important institutions. The remainder of respondents neither agreed nor disagreed.

Of those employees who perceive a conflict, nearly half said they don’t believe senior leaders in their organization mean what they say, compared with the 19 percent of employees, in general, who do not believe that senior leaders mean what they say.

Employees cited various factors that might be contributing to this lack of alignment. Some raised concerns about their firms’ business model, for example, suggesting that particular products did not necessarily meet customer needs. Others said that values were inconsistently applied internally.

In small firms, concerns often centered on maintaining the firms’ original purpose and values. In some larger or more complex organizations, corporate silos were seen as one factor inhibiting a sense of shared purpose.

“The BSB annual review provides an important reference point and a guide for improvement across the sector.”
Antonio Simoes, Chief Executive Officer, HSBC Bank

Accountability and speaking up. The BSB review also found that many of these banks are not fostering a speak-up culture. Nearly three in ten employees across all firms, for example, said they worry about negative consequences if they raise concerns, and one in seven said they don’t feel comfortable challenging a decision made by their manager.

Respondents of some firms said employees become defensive when their views are challenged. “Focus group participants who observed elements of a blame culture in their firm tended to associate this with a less open environment,” the BSB report stated. “In some firms, employees identified hierarchy and a reluctance to upset line managers or senior colleagues as factors. In others, a highly supportive and consensus-based culture was seen as discouraging the raising of concerns or mistakes.”

The findings of the BSB survey also pointed to a lack of accountability in some cases. Nearly 37 percent of employees said they saw others trying to avoid taking responsibility for actions or decisions.

Renumeration and reward. Boards and executives of many firms told the BSB that they link the remuneration process to behaviors in line with their firms’ values. In many cases, this included the removal of sales targets from frontline employees, the use of balanced scorecards, and/or taking into account behavioral objectives and business targets. “In some firms, focus group participants said sales targets remained implicit through the retention of business targets for their managers,” the report stated.

Taking into consideration lessons learned from Wells Fargo and the extensive financial and reputational damage it has suffered due to its toxic corporate culture and sales culture, other firms may want to reassess their own sales policies and practices.

According to the BSB review, employees across several firms described their firms’ remuneration and reward policies as “confusing and over-engineered, in particular with respect to the links between different elements of performance assessment, fixed pay, and variable pay.” Moreover, interviews with non-executive directors suggested that “the primary focus of remuneration committees in several firms is on remuneration and reward for executives and the highest-paid employees.”


Below is the Banking Standards Board's “Statement of Good Practice,” concerning the “Certification Regime: Assessing fitness and propriety.”
The new Certification Regime commenced on 7 March 2016. It requires senior managers to attest annually to the ‘fitness and propriety’ (F&P) of individuals who are managing significant risks. These employees, along with almost all employees in a bank or building society, are also required to act in accordance with new Conduct Rules introduced on the same date.
While the new regulation is clear in its requirement that firms assess the F&P of certified individuals, it leaves the detail of how this should be done largely to firms themselves. Given the importance of the new regime to standards of both behaviour and competence across the banking sector, the BSB began in early 2016 to explore with its members the scope for both learning from each other about implementation of the new regime and identifying areas where consistency of approach could be beneficial.
Following these initial discussions, a Certification Regime Working Group (CRWG) drawn from BSB member firms was convened in January 2016 to help to develop a common understanding of the policy and operational issues associated with the Certification regime and to establish good practice guidance and examples.
The CRWG met nine times throughout 2016. In June 2016, the BSB launched a three-month public consultation in relation to the draft guidance on assessing fitness and propriety. The culmination of this work is the publication by the BSB of two documents designed to help firms to use the Certification Regime as a means of raising professional standards.
These are:
Statement of Good Practice 1 on the Certification Regime: Fitness and Propriety Assessment Principles — This document supports firms in their implementation of the Certification Regime by providing a set of high-level principles on the assessment of fitness and propriety; and
Supporting Guidance to Statement of Good Practice 1 on the Certification Regime: Definitions, Sources of Information and Assessment Record Template — This document should be read in conjunction with Statement of Good Practice 1 on the Certification Regime: Fitness and Propriety Assessment Principles and provides firms and those assessing fitness and propriety with further information on what each element of fitness and propriety means and how it might be assessed.
An analysis of the feedback received during the consultation exercise can be found in the consultation report. The main changes in light of the feedback received during the consultation are:
The F&P Assessment Principles document is now the primary Statement of Good Practice, with all other documents acting as Supporting Guidance;
The Definitions, Sources of Information, and Assessment Record Template have been combined into a single piece of Supporting Guidance;
The definition of ‘honesty and integrity’ has been changed;
The Sources of Information have been changed to provide greater clarity on which sources of information are appropriate for different types of assessment (e.g. annual assessment, new to role assessment) and to provide greater clarity as to when some sources of information are likely to be relevant to the consideration of a person’s fitness and propriety; and
The Assessment Record Template has been shortened and simplified.
The work of the Certification Regime Working Group on assessing fitness and propriety continues, and further proposed Statements of Good Practice and Supporting Guidance will be published for consultation during 2017 covering issues such as identifying and evaluating risks and issues related to Certification i.e. circumstances which, should they materialise, could call into question whether an individual is fit and proper to perform their role; assessing the F&P of individuals working outside the UK or moving to the U.K. from overseas; and factors to consider when sharing information about Certified individuals when they move between firms (linked to recent requirements for firms to provide ‘regulatory references’).
Source: BSB

Job competence. Four in five employees said that employees in their organization, generally speaking, have the skills and knowledge to do their jobs well and that they are encouraged continually to learn new skills. “Executives at several firms said that leadership skills were a clear current priority in training, as well as developing capability in managing technological change and data,” the BSB report stated.

Many respondents also said they are encouraged to share learning and good practices with others. “In focus groups, some described the value of internal rotation programs, as well as formal training, while others spoke positively about knowledge-sharing sessions,” according to the BSB report.

Respect for risk and compliance. The BSB report also revealed positive results concerning the areas of risk and compliance. More than nine in ten employees across all firms expressed confidence in their ability to identify risks in their area, and a similar proportion said that risk and compliance are respected functions in their firms.

Over four in five say they are encouraged to follow the spirit of the rules. In several firms, employees spoke positively in focus groups about the risk-culture programs and campaigns their firms had been running. Boards and executives, too, described how their focus on risk had increased in the wake of the financial crisis and conduct issues in banking.

In firms where employees noted that progress had been made in identifying risk, overall factors suggested as having contributed to this included:

Clarity over risk being the responsibility of everyone and not just of one part of the business;

Risk and compliance having improved their product and business knowledge to become more respected voices in challenging front-office colleagues; and

Leaders who were seen to demonstrate respect for control functions and to speak consistently about the need for such respect.

Where progress was less apparent, employees suggested that controls and compliance processes had been introduced in a way that put added strain on employees, that they were onerous in design, or that the reasons for their introduction had not been clearly explained.

BSB upcoming priorities. In addition to its assessment of firm culture, the BSB report also spelled out its priorities over the coming year.

According to the BSB, these priorities will focus on three distinct themes:

Understanding and helping to address the mismatch in many firms between the values espoused by the firm and the way that some employees see business being done;

Identifying practical steps to help promote personal resilience and wellbeing among employees, so that employees working in U.K. banks and building societies are able to serve their customers and clients well; and

Helping to develop a culture within the banking sector of responsibility and accountability, rather than of blame.

“Good customer and client service requires a culture in which poor performance and behavior have consequences, certainly, but it also requires one in which mistakes are learned from, ideas encouraged, professionalism prized, and diversity of views valued and fostered,” the BSB stated.

In exploring these issues, the BSB said it “will not only lead work but also, as appropriate, support or partner with organizations sharing similar or complementary aims, including in other jurisdictions and outside the banking sector.”

Supporting these themes over the coming year, the BSB will develop further its Statement of Good Practice, following the publication in February of its first guidance on assessing fitness and propriety under the new Certification Regime. The BSB will also work with professional bodies, qualification providers, firms, and others to facilitate and promote work on professionalism through a new Professionalism Forum, to be established in May 2017 and chaired by BSB Deputy Chairman Sir Brendan Barber. In exploring these issues the BSB said it will “not only lead work but, as appropriate, support or partner with organizations sharing similar or complementary aims, including in other jurisdictions and outside the banking sector.”