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ICAEW: Actions need to be taken in order to prevent the next financial crisis

The foundations for the next financial crisis are on its way unless a sense of purpose is embedded in financial services according to the report Culture and Purpose released by The Institute of Chartered Accountants in England and Wales (ICAEW).

ICAEW head of financial services Philippa Kelly said: “We need financial services in order to function as a society, but across the industry people lost sight of what their products and services did beyond making money.

“We’ve seen a number of scandals where customers have been failed, mis-selling, benchmarking fixing and more. What was missing was an understanding of the purpose of the financial services and how customers use them.”

There are four practical aspects of creating and maintaining a good culture that the report considers; conduct, incentives, profits and purpose.

Conduct

This aspect is based on a customer-centric approach and encourages staff to understand and implement the business’s mission and cultural values. The report suggests that consistency is key and everyone including the board directors should be modelling expected behaviours consistency to adhere to conduct expectations within the sector.

The report said: “The board must first understand their existing culture, and then clearly articulate what culture they want to have. Consistency across all parts of the organisation is essential.” If this is not implemented then it could create an environment where staff are less likely to care about the non-financial risks and issues to the business.

Incentives

The ICAEW reports suggests: “Those outside financial services often believe that financial incentives are the main drivers of behaviour and decision-making. However, soft factors, such as recognition and promotion, have been found to be equally important.”

The outcome of financial and cultural incentives will be to align incentives and deterrents with good customer outcomes.

Profits

A greater depth and understanding is needed to understand product income and costs and profitability, this will then help deliver better conduct outcomes.

Purpose

The financial services industry is rapidly evolving since the financial crisis in 2008. The report suggests that, “a sense of external purpose may help preserve good behaviours and vales by providing a link to the customer and the real outcomes of one’s actions”.

The report continues: “Remaining connected to purpose provides the necessary grounding and direction to work ethically, regardless of timing, circumstance or other pressures”. The judgement of products will be viable through a connected purpose and good culture within the sector will reinforce an individual’s ability to act with purpose.

A need for change

Public interest in social responsibilities facing the financial services means that there needs to be an urgent need for change.

The outcome from the four practical aspects have already led to a safer and more trusted industry, according to the ICAEW and now there needs to be a focus that the industry does not become complacent.

 

By Mishelle Thurai 

 

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