Regulator interested in significant cultural change in financial services – Stuart Murdoch


Stuart Murdoch is a partner, DLA Piper, who provided legal services to COP26

It wasn’t just about politicians vying to be at the center of the debate. Businesses, scientists, and everyone else were eager to be a part of the conversation. Could Glasgow eventually be seen as one of the most successful COPs since Paris? Not because of what was agreed at the conference, but because of the tangible progress that has been made and can be made before Sharm al-Sheikh takes over from COP27.

For large financial services companies (FS), being at the center of the climate change debate and, more importantly, climate change action, shows how far they have come in rehabilitating themselves from the depths of the global financial crisis. A large Scottish bank was a main partner of COP26.

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Since 2008, bankers have been vilified for destroying the global economy. Fast-forward to 2022 and the big FS companies have a lot to talk about in terms of their responsible and sustainable business credentials.

Certain major SF institutions have announced science-based targets for the reduction of harmful emissions. UK companies are financing solar, wind and tidal parks, as well as projects for electrification, energy storage and carbon capture. Most of the big banks helped implement new ‘payee confirmation’ rules that help prevent payment fraud.

UK fund managers are leading the way in ESG investing by offering easy access to socially responsible funds to the growing crowd of ethical investors. And nearly every large financial services firm has made demonstrable progress with the longstanding and structurally entrenched issues of diversity and inclusion, social mobility, corporate governance, the gender pay gap, and parental responsibility.

The sector’s regulator, the Financial Services Authority (as it was), was a high-profile casualty of the global financial crisis, as it was deemed ineffective in anticipating or averting collapse. Its conduct oversight role was taken over by the Financial Conduct Authority (FCA) in 2013. Since then, it has levied fines of over £3bn and oversaw the remediation of clients totaling many multiples (including over £ 38 billion for PPI alone).

A recent crackdown by the FCA has been in relation to defined benefit pension transfers, where some financial advisory firms encouraged final salary pensioners to forgo regular guaranteed payments for life in exchange for a lump sum to invest. . So far, the FCA has stopped a thousand pension transfer companies. However, with billions of pounds of compensation still potentially owed, the FCA still has to work hard to encourage victims to make claims.

Despite having its sleeves rolled up to tackle pension transfers, the regulator is actually trying to push culture change rather than being forced to go all out. But what does culture change really look like? Sure, it means positive customer interactions and outcomes at key customer service touchpoints, but frontline customer service is rarely the root of serious harm. Product design is one of the most important elements and many FS firms have been consciously creating new services that strike a balance between reasonable profit and real value for the client.

The FCA’s latest culture change tool is the proposed new Consumer Duty. This is intended to catalyze a significant change in the behavior of companies to focus on good results for customers. The FCA wants companies to think about how best to prevent harm to clients and how to help clients pursue their financial goals all the time, not just when dealing directly with them.

FS firms welcome this development with open arms, which is a change from the industry’s perceived past resistance to new or improved regulation. For many, regulatory standards are no longer the benchmark, they are (at least aspirational) the bare minimum.

It appears that FS firms are beginning to conclude that sustainability and profitability are not mutually exclusive. Changing investor attitudes could empower FS boards to focus on the “triple bottom line,” which includes fair financial reward, while seeking performance that goes beyond mere profit.

Stuart Murdoch is a partner, DLA Piper, who provided legal services to COP26


www.scotsman.com

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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