Following The Report’s recommendations alone is unlikely to be enough to restore public trust in financial institutions. It will take strong leadership and a cultural shift to make a difference.
The question of how financial services organisations can restore trust post the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is not easy to answer.
A 2018 study by yougov found that two-thirds of UK adults still did not trust their banks following the global financial crisis, with the UK experience demonstrating the solution won’t be simple and trust won’t return quickly.
Despite the challenges, the need to focus on trust post the Royal Commission is clear. The Australian Government has signalled that restoring public trust in financial institutions will be one of its guiding principles in responding to the recommendations.
Treasurer Josh Frydenberg MP said: “The government’s principal focus in on restoring trust in our financial system and delivering better consumer outcomes.”
In the wake of the Royal Commission’s Final Report, there will be a plethora of new and strengthened regulations and requirements. APRA and ASIC will be more vigilant and aggressive.
ASIC has signalled an "if not why not" stance on litigation. Regulators’ effectiveness will also be monitored more closely. Major changes are also likely in wealth, superannuation, and insurance sectors. Individual accountability will be extended to all areas of the financial services sector.
Banks and others in the sector will undoubtedly make a sincere effort to comply with the requirements.
But will new controls alone be enough to restore trust? Doing more of the same is unlikely to make a substantial difference to regaining social licence.
Beyond formal controls and regulatory compliance, organisations will also need to better identify and deal with reputational risks. This starts with listening intently to a wider range of stakeholders, and recognising that it’s not just customers who have recourse to policy makers in a democratic system.
A focus on monitoring customer satisfaction through mechanisms like the Net Promoter Score proved virtually useless in predicting the reputation crisis that engulfed financial services. Customer satisfaction was largely maintained through the whole process.
360 degree reviews are a popular feature of individual performance management, and the concept has application at the organisational level as well. Organisations that institutionalise listening to the views of a wide range of stakeholders – including their harshest critics – are more likely to pick up the warning signs that reputation is at risk.
In processing this feedback, boards need to ensure shareholder returns are not prioritised over the value that’s shared with other stakeholders. Seeing the board’s role as being a ‘parliament of stakeholders’ helps here. It is about balancing interests and demands, and sharing value with customers, employees, the broader community and unrepresented stakeholders like the environment and the economy.
Identifying the root cause of a poor reputation amongst stakeholders is management’s obligation. Often, a poor external reputation derives from poor internal culture.
More needs to be done to ensure poorly designed incentives don’t get in the way of employees making decisions as though the customer is in the room, and the outcome could be reported in the media. This requires nothing short of fundamental cultural change, led from the top.
If front line customer-facing staff see the executive and the board constantly focused on profit and shareholder return to the exclusion of broader purpose, what are they likely to prioritise in the moment of truth when deciding a customer outcome?
Executives need to develop and deliver a clear narrative that emphasises values beyond profit and recognises the interests of a broad range of stakeholders. They must demonstrate commitment to these outcomes in their decisions and actions. For banks in particular this needs to go beyond philanthropy to a focus on their traditional core role in supporting entrepreneurialism and underpinning the economic health of the nation.
Controls and compliance will get financial institutions only so far in the battle to restore trust and social licence. Leadership is also required to listen to the legitimate concerns of a wide range of stakeholders, deal with the root causes of reputation issues, and engage society with a narrative that emphasises values and purpose beyond profit.
Liability limited by a scheme approved under Professional Standards Legislation.
For more detail about the structure of the KPMG global organisation please visit https://home.kpmg/governance.