Banks have ‘lost the social right to make money’

Speaking at the bank’s recent Business Partners Summit in Sydney, Mr Carter touched on the recent focus on bank culture and conduct, particularly by the regulators and industry (ASIC’s incoming chair James Shipton has said that cultural reform will be a key challenge for the financial industry).

Mr Carter said: “In the banking world, there has been a lot of focus and culture and the ramifications of that, and more regulatory change coming down the line. Most of it has been an own goal really. Unfortunately, I think that, as an industry, we've lost the social right to make money — we need to earn that back.”

While the CEO of banking & wealth said that he did not believe that people “begrudged a business from being profitable”, he argued that they “begrudge the way in which the banks have appeared to have done so in recent times”.

“So that is a large conversation at the moment: How do we re-earn community trust and deal with political stakeholders? How do we deal with regulatory stakeholders? At the end of the day, Australia has a very strong banking system — partly because the regulator is very good and partly because the banks are pretty good. We just have to be better and be there for the customer and do things the right way at the right time and re-earn that trust.”

Mr Carter added that good culture was hard to define, while poor culture was easier to identify.

He said: “Culture is like a cloud; you can’t just wrap a ribbon around it and say: ‘There is the culture’. But it’s very clear that when you don’t have the expectations of stakeholders, and it’s very clear when you have it. So, we know what the downside feels like, particularly in banking at the moment.”

The CEO of banking & wealth went on to highlight how the financial advice sector had “been through a lot of pain” with issues around its “perceived culture and conduct”, and had been forced to change. He added that the broking industry should therefore be cautious, as self-regulation is much more “viable than regulation”.

Noting ASIC’s current review of broker remuneration and interest-only loans, Mr Carter said: “[Broking] at the moment it is not too heavily regulated. Self-regulation still exists. The key question is, how do you make sure you maintain the right to be self-regulated? It’s by making changes aggressively so perceptions around culture and conduct don’t cause intervention.”

Mr Carter, therefore, suggested that brokers keep an audit trail of their processes, as it is “pretty hard for someone to prove that on one occasion you didn’t [follow it]. But if you don’t have a good documented process, a planned audit trail that shows what you do every time, it’s harder to argue that you haven’t done the wrong thing.” 

Suncorp Group’s chief risk officer for insurance, Corinne Glasby, added that regulatory scrutiny had become more about “the spirit of the law” rather than the “black letter of the law”.

She explained: “The [regulators] are looking at whether our customers are getting good customer outcomes. That’s the change. It’s about perception, in many ways, rather than just the reality. It’s very easy for us to say that this is what we intended, but is that what the customer would have expected? And is it what the regulators are going to expect?

“I think that’s very tied to the culture and conduct and there are things happening in all industries that we can learn from.”

Ms Glasby elaborated: “If we look at the banking BEAR regime, I think that is very clearly saying that accountability and conduct are really important to the regulator, and if we are not seen, as an industry, to be dealing with that ourselves, then the regulator will impose things on us.”

She concluded: “As business owners, you need to think about what is the culture you want in your organisation, and you need to think about being customer-centric.

“If you put the customer at the centre and put yourself in your customer’s shoes, then that really helps you protect yourself from regulation that might come in. Because that’s really what the regulators are looking for. You want to have a risk-aware and compliant culture... from both a perception point of view as well as a black-and-white point of view.”

[Related: Customers, brokers question bank ethics and culture]