Tone from the Top

  • 2 October 2018
  • Blog | Professionalism and Ethics | Blog

As banks work to embed advanced analytics in their DNA and leverage the value of customer data, what determines a healthy banking culture in the digital age?

Psychological safety over fear; remuneration and incentives; leadership and management capabilities; and assessing culture: all of these have been identified by the Financial Conduct Authority as ongoing thematic lines of enquiry. It’s part of the dialogue initiated by the regulator in March and intended to speed up the pace of change for cultural transformation in financial services. It’s pertinent that this culture in banking debate coincides with the digital transformation that is making the industry more inclusive for itself, its customers and its competition.

With digitisation and automation comes a volume of data, insights and intelligence that is becoming part of the banking culture in terms of how it is viewed, vaulted, valued and – in the crudest form – vended.

David Llewellyn, Professor of Money and Banking at Loughborough University, says banks have always been in the information business: “That is their comparative advantage, but historically they’ve only scratched the surface in developing that advantage and are now in a much better position to utilise data.”

The current transformation in retail financial services, Professor Llewellyn says, depends largely on the consumer and on a willingness to transcend the divide between relationship and purely transactional banking. “Will consumers be prepared to transfer information from their bank account, which is implicit in the Open Banking model? It’s important to distinguish between what is technically possible and what consumers want. Just because something is possible doesn’t mean that’s what we want.”

The financial crisis, misselling and other scandals defined the banking industry of a decade ago, and there was a corresponding decline in trust. “We’re not as confident in dealing with our banks as much as we once were,” says Llewellyn. “Do we trust the culture of the bank?”

Liz Sandwith, Chief Professional Practice Advisor at the Chartered Institute of Internal Auditors (IIA), references the 2017 Edelman Trust Barometer which pointed out that the financial sector is still viewed as untrustworthy. She is hopeful that part of the solution lies in the IIA’s remit to educate businesses about the role of internal audit in linking governance and culture to help rebuild that trust and also to “strengthen an organisation’s reputation”.

Internal organisational audit, she stresses, contributes to the debate about culture, governance, compliance and reputation.



“Culture should be set by the board and senior management team and should cascade through and be understood by all individuals within the organisation,” she says. “We have seen a number of examples where the tone from the top is flawed – look at Oxfam and the halo impact that had. Contributions from the public fell around 35%, so culture isn’t just important to an organisation – it has the ability to impact across the sector.”

Feedback the IIA is receiving is that culture starts at recruitment. Sandwith says it’s essential that individuals are recruited who share the organisation’s values and embrace the culture. “One CEO I worked with felt culture was as simple as ABC – attitude, behaviour and consequences. In other words, if individuals don’t demonstrate the right attitude and behaviours, there should be consequences.”


The concept of purpose is increasingly being incorporated into mission statements and corporate vision. Anjan Thakor, Professor of Finance at Washington University in St Louis, has researched organisational culture in banking. He has developed a framework for diagnosing and changing corporate culture in a way that more effectively supports the bank’s growth strategy and induces behaviour that enhances financial stability. “A healthy banking culture is one that is based on a clearly articulated higher purpose for the bank; a prosocial contribution goal that transcends usual business goals but intersects,” he says.

“It should emphasise high capital in the bank and value safety over ‘reckless’ growth. Compensation packages for executives should be aligned with this culture.” He gives the example of “just compensating loan officers based on loan growth is inadequate”.


Chris Bailey, founder of research consultancy Financial Orbit, says the profit incentive remains at the core of any financial institution but not as intensely as it was prior to the global crisis of 2008. “Compliance cultures are more appreciated and risk exposures are better understood, although the complex, dynamic and opaque web that underpins any financial sector company will always provide uncertainties,” he says. “The shift to deferred incentive compensation regimes with longer vesting periods and the expunction of such benefits at the time of leaving a company should help these efforts.

“However, memories fade slowly and senior managers who themselves rose through the ranks during more risk-embracing epochs are still susceptible to business routines which will become unstuck during cyclical downturns. A managerial ethos of equally questioning material positive and negative shifts in operational performance/market share has to become central to all financial sector institutions.”

Liz Sandwith agrees that the values, policies, attitudes and behaviours set out by management require proper monitoring, and questions what type of behaviour is being driven by performance-based rewards. “The Wells Fargo Bank was a recent example where performance-based rewards drove the wrong behaviour. If the lessons at Toshiba and Wells Fargo and perhaps now Carillion have taught us anything, it’s that the existence of an inappropriate culture can be dangerous to an organisation and its employees.”

Against the backdrop of old habits dying hard, the adoption of internal audits and the embracing of organisational culture, which skills do today’s leaders need in order to cultivate a healthy banking culture?

Sandwith advocates being proactive. “The IIA is hearing from members and SMEs that organisations need to prepare for incidents, be it a regulatory breach, a cybersecurity event or a change in senior management, such that in the calm before the storm they have their ‘story’ for the media and customers.

Preparation of a business resilience statement can contribute to reducing damage to reputation.” Thakor circles back to purpose and how leaders need to understand what a corporate higher purpose for the bank means, how to imbue the bank with it, and the levers they need to pull in order to change culture. Most importantly, he stresses, they should understand the value of having high capital in the bank of an equity-to-assets ratio of 15% or higher.


While the views of Thakor, Llewellyn, Sandwith and Bailey should be universally recognised as wholesome common sense, Simon Thompson, Chief Executive, the Chartered Banker Institute, is worried that some of the messages may be lost due to the distraction of digital transformation.

Banking, he says, will primarily be shaped by data, technology and myriad digital channels; a hybrid banking model where bankers and regulated technology work alongside each other is in its genesis. He’s keen to ensure customers are not viewed as mere ‘data collection points’ and to that effect the Institute has developed the Advanced Diploma in Banking and Leadership in a Digital Age to prepare future generations of bankers who, in addition to learning about technology and data, will be educated about the core banking skills of credit, risk, regulation, banking operations and professional ethics.

Thompson says it’s essential the industry doesn’t just focus on the digital and the data and on the technology which should underpin and not determine the service which is banking. “The challenge is training future generations of bankers at all levels, from service officers to chief executives, to be able to understand what the deployed technology is, how the deployed technology works, how it arrives at the outcomes it does, what inputs it needs, and to be able to demonstrate that the outcomes are genuinely in customers’ best interests.”

In essence, he wants to ensure the industry avoids a bias or other ethical issues that can creep into technology, and reconcile the advancement of technology with the restoration of trust.