Culture and conduct starts from the top, but it must be reinforced by the tone at the middle, and critically the tone at the customer front line. Ultimately the true measure of ‘good’ culture is determined by the quality of client outcomes. How do you embed a ‘good’ culture in your organization?
A clear direction of travel
Over recent years there has been a very deliberate drive by financial regulators to move from a ‘buyer beware’ to a ‘seller beware’ world.
Although there is unlikely to be a consistent set of regulatory standards in relation to culture and conduct across the world’s main retail and wholesale financial markets any time soon, a clear direction of travel is emerging. And in my view it is critical for their competitive success that Swiss financial institutions fully understand the implications of this trend. Societal pressures to improve standards of conduct promise to be unrelenting for many years to come.
Supervisors increasingly want to see what actions firms are taking to embed the right risk culture across their organization, and thereby ensure ‘acceptable behavior’ is consistently demonstrated in relation to customer outcomes. The introduction this year in the UK of a new senior manager accountabilities framework is but one example where supervisors are putting their focus upon leaders’ direct personal responsibility for developing and maintaining the right corporate culture.
So, what should the Boards and senior management of financial institutions in Switzerland be doing?
Key areas for attention
Work undertaken by KPMG member firms with our clients worldwide indicates that there are some key areas that are worth particular focus:
- Embed the desired culture and values at all levels – it is critically important to define the desired state, and then ensure all relevant staff are recruited, trained and rewarded consistently in line with that desired state.
- Deal with the ‘grey areas’ – communicate clearly what ‘doing the right thing’ means in areas where judgment is required, and where there is a trade-off between customer treatment and the profitability of the firm.
- Learn lessons – systematically analyze and address lessons from other areas of the firm, and learn from the specific failings of other firms.
- Define a set of clear metrics – develop a new set of metrics to measure culture, harnessing new techniques and external perspectives.
- Build a robust assurance framework – embedding cultural change requires a comprehensive assurance program to assess whether change is effective and permanent.
Achieving cultural maturity
Corporate culture within a financial institution will often be complex and multi-faceted, and for good reason. Many Swiss financial institutions operate in both retail and wholesale markets and the diversity of products and customers can be bewildering. Nonetheless, in my view, ‘good’ conduct should not differentiate between retail and wholesale markets, and a simple reliance upon legal compliance is insufficient. Yes, in those markets regulated by the traditional rule-driven approach, there has to be robust legalistic compliance, but the outcome of the recent US Program for Swiss banks demonstrated very clearly that behavior at the point of interface with the individual client really matters.
And this is where it gets particularly complicated for Swiss financial institutions which, within the wealth management sector in particular, provide a significant percentage of their financial products and services to customers resident outside Switzerland. Many Swiss financial institutions already achieve a sufficient level of cross-border and cross-cultural maturity to succeed internationally, but there is much more that must be done to achieve consistency of ‘good’ customer outcomes across diverse markets and national boundaries.
Open the information flows
In conclusion, perhaps the most important advice I can give on the topic of culture and conduct is that it is only the open corporate culture that is capable of embedding and sustaining the right behaviors at every level of the organization. A clear and consistent tone from the top has to be matched by the championing of a free flow of information and learning, up and down as well as across the organization. Only then will best practice be shared and the right outcomes for clients assured.
Such openness does not come easily, especially within organizations where the historic rigors of banking secrecy often made a virtue of carefully controlled silos. However, the regulatory landscape has and will continue to evolve, and competitive advantage will lie with those organizations that truly create and sustain an open culture.
Read further about Culture and Conduct in the newly released Part Five issue Evolving Banking Regulation.