Author: Andy Agathangelou
The industry still has a long way to go on ethics and governance, says Andy Agathangelou
I think this page on the Financial Conduct Authority’s website is shocking. It shows the fines the regulator has levied during 2019; and if you wish you can easily navigate through it to the fines relating to previous years, some of which are even worse than this year.
When you review the pages, you see that “unfair treatment of customers,” “breaches of disclosure rules” and “breaches of transparency rules” are often cited as part of the description of the conduct that led to the fine. I’m very deliberately drawing attention to the FCA’s fines pages because they are a stark reminder of how extensive the issues of poor conduct in financial services are; and there are reasons why I want to do that…
Parts of the finance sector are riddled with conduct problems, but in my opinion, not enough is being done to sort them out on a pan-industry basis and they are not being treated with anything like the sense of urgency they should be. I’m referring to deep-rooted problems such as conflicts of interest, a lack of transparency, short-termism, asymmetries of information; poor governance, poor culture and a general lack of virtues-based leadership.
The problems at the heart of the financial services sector could be summarised as “a money before morals mindset” or “a profits before principles mindset.”
Of course, not every part of the sector has these issues and the vast majority of people and firms in the financial services sector have not done anything wrong at all. However, it is crystal clear that the public have become distrusting of the banking and finance sector as a whole, as evidenced by the extensive research carried out on the trust deficit by various organisations including Edelman with their Trust Barometer, and of course the first class work carried out by the CFA Institute itself, which I have admired for years.
The key take-away from the Edelman Trust Barometer is this:
“….at 57 percent trust among the general population, financial services remains the least-trusted sector…” out of all 15 economic sectors.
Now, that’s a huge problem for a sector that has to be trusted to function succesfully. It might interest you to know that the word credit comes from the Latin word credere which means “belief in”. This is an important point because it helps us understand that the abstract construct that is the finance industry, has to be something that people can believe in for it to function.
I joined the finance sector way back in August 1986, and I can’t remember a time since then when there hasn’t been adverse publicity about poor conduct in financial services lingering somewhere. There have been thousands of incidences where a “money before morals” mindset has led to the public at large being ripped off by a financial services sector that sometimes seems to be purposefully predisposed to serve its own agenda rather society.
My concern is that the continuous “drip, drip, drip” of misdemeanours, malpractice, malfeasance, misconduct and miss-selling; and the reputational damage it causes, might now be so frequent that we are becoming de-sensitized to it. What should shock us no longer does; and that’s a problem.
This de-sensitization means we might be accepting the trust deficit as “business as usual”; and if we do, we are on a slippery slope that takes us from accepting to expecting, thereby perpetuating the problem and locking us into a never-ending spiral of decline.
This is why I make the point, whenever I can, that the finance sector is too important to the wellbeing of society for us to gamble with its reputational integrity by not doing all we possibly can to help drive the cultural transfusion and transformational change that is desperately needed.
Pragmatic Solutions
Through our meetings, we’re doing all we can to create opportunities for candid yet constructive conversations about what has got us into this terrible mess and what it is going to take to get us out of it. We don’t believe we have any easy answers, but we do believe that the only way real progress can be made is to give the problems the focus and attention they need and to actively look for pragmatic solutions.
Honesty is always the best policy, so I’ll share what I really think.
I really think that CFA as a whole is an outstandingly good organisation that is doing more than any other professional body to get to grips with the issues that are causing the trust deficit. I’ve had the privilege of liaising with many people in and connected to the Society and to CFA Institute in recent years, who are as committed as they can be to be part of the solution and to inspire others to be the same.
Having spoken to many hundreds of people around the world about the trust deficit and its consequences, I’m absolutely convinced that what is needed more than anything else is the creation of a sense of collective responsibility for “being the change” and that can only happen if all like-minded individuals actively explore how we can work together for the common good.
A good place for any collaborative effort to start is to look at the underlying causes of the behaviour that leads to the problems we are all interested in managing out of the system. With that in mind, we’ve been identifying issues such as conflicts of interest, incentives that encourage short-termism, poor governance, poor culture, a lack of transparency and a general lack of values-based leadership as some of the most toxic topics to be wrestled with.
I would actively encourage all organisations in the investment industry to initiate internal conversations around questions that will create meaningful dialogue that in turn can help to drive change.
Questions such as:
- Are transparency, truthfulness and trustworthiness commercial virtues?
- How can we accelerate the rebuilding of trustworthiness and confidence in financial services?
- Which individuals within our own firm do we think of as role models when it comes to professionalism, integrity and ethics?
- Are there other firms in the sector that we admire; what can we earn from them?
- How can we get ahead of the regulatory conduct curve?
- Should we think of appointing one of our existing colleagues to take on an additional duty as a Trust Officer; with the role of providing feedback to the firm when it does things that may be positive or negative when it comes to trustworthiness?
Of course, the above are just suggestions and I’m sure that with just a little bit of effort you’d be able to come up with a more meaningful set of ideas that could work particularly well for you. The detail really doesn’t matter – what does matter is doing whatever is needed within your own organisation to collectively acknowledge that the trust deficit exists, that it’s a pan-industry problem and that it won’t go away on its own.
I’m proud of the first class working relationship the Transparency Task Force has with CFA Institute right around the world; and I’m as keen as I can be to find ways to support your many and varied efforts to drive positive, progressive and purposeful reform, because that’s exactly what we’re all about, too.
Andy Agathangelou is founder of the Transparency Task Force