Two sides of the same coin?

Compliance and productivity in retail and investment banking.  

My colleague Robert Simpson was recently able to bring together a very interesting group of people, to discuss the regulatory environment for financial institutions operating both here and in the US. These included compliance leaders from financial institutions, analysts, broadcasters, writers and legal experts. Although Robert works primarily in the investment banking sector, when I caught up with him after the event, I was struck by how many parallels there are between the concerns of the attendees at his seminar, and the preoccupations of finance professionals that I work with in the retail banking industry.  

The first of these was simply the need to regain trust. In investment banking, the very integrity of the capital markets is at stake (indeed, some commentators have argued that the City’s rule of law is its most valuable export) but, in the retail sector, trust is no less important. It is only six years since we saw the first run on a high street bank in the UK for more than a century and, since then, mis-selling scandals have raised their ugly heads with alarming regularity.  

PPI has grabbed the headlines, but even after that multi-billion pound hit to industry profits, mis-selling of one sort or another still appears rife in the UK’s retail banks. OTC derivatives, interest-only mortgages and interest swaps have all raised fears in recent months. This isn’t just an issue for those unlucky enough to come across an unscrupulous sales team; in a consumer economy that is only just struggling back to its feet, it is also an issue for the UK’s international competitiveness. If consumers and small businesses cannot trust banks to issue good advice, to sell appropriately, or even to keep deposits safe, then credit cannot flow, wealth cannot be built and debts cannot be paid.  

A second striking similarity between my work and Robert’s that emerged from his seminar is how advances in technology are helping banks to offset the cost of tighter regulation. In both investment and retail banking, it is the case that the extra information that banks are now required to collect and store can be harnessed to increase the productivity and effectiveness of staff. Information such as voice records from sales calls, desktop process records and customer feedback can all be exploited in this way. As the next generation of recording and analytic software comes in to use, it is now a great deal easier to analyse the information that is being stored, not only to investigate potential misconduct with minimum impact on the business, but also to identify and correct underperformance amongst staff. Ongoing, real-time analysis can mean that performance can be managed on a qualitative and scientific basis, not just through the raw quantitative measures of the quarterly review cycle.

As one of the speakers at the seminar pointed out, we should no longer expect regulators to be friends of the banking industry. Indeed, it would be wrong of us to expect that they should help us to circumvent the rules they put in place. In the end, their job is to ensure the resilience and effectiveness of the financial system, and it is in everybody’s interest that they are successful in doing so. As Robert noted after the event, the best way for banks to respond is not by seeking out the loopholes, but by designing a strategy that will maximise the beneficial consequences of proper compliance.