What keeps IT experts in financial services, up at night?
It’s the sheer volume of regulatory reform entering their lives. This is according to a new study by the Economist Intelligence Unit.
Their “greatest worry” is coping with the changes. And not far behind as a concern is the sheer pace of change. Hardly a shock horror result and so far entirely predictable.
This slick, well-presented report ends on a dismal note. New transparency and cyber security requirements are failing to trigger changes to internal procedures. Nor are codes of conduct being much affected. Just as important, the main focus remains on narrow legal compliance.
What needs to happen is a shift to changing corporate cultures. Only that kind of change will affect ethical conduct. Culture thus remains the ugly duckling, waiting for transformation into a swan.
The EIU report explores three geographical regions: Asia Pacific, Europe and America. Yet it fails to offer anything to distinguish these from each other.
This a pity, since there is now evidence from the US at least, progress is happening in the culture battle. For example, the largest US banks are making progress reforming their culture. They see ethical change as an imperative.
“I think that we’ve come quite a distance in two years.”
US financial regulators have asked leading companies to explain how they’re tackling their cultures. This caused something akin to a sharp collective intake of breath.
Here were regulators doing far more than seeking the usual box ticking evidence, easily provided by good old technology. Instead, they wanted hard to quantify facts about “the way you do things round here.”
Such a request was at odds with the common emphasis on pure technology solutions. The latter uses IT fixes to make compliance into less of a monitoring nightmare.
Even in the US, though, culture change in financial services is more an aspiration than a reality. When it comes to actual banker conduct:
“…I don’t think we are seeing the results I was hoping for” says New York Fed’s Baxter. “…Technical innovations such as analytical tools only take you so far.”
Michael Alix, a principal in the financial regulatory practice of PWC agrees. You can have all the all the ‘gotcha tools’ you can create he says.
“But you had better have the right message. Otherwise your sensors are going to go off all the time and you’ve got a problem.”
In the UK few banks have gone through what the MD of JP Morgan calls the “anger, denial curve” on culture. The missing ingredient is senior level engagement.
This lack of engagement is worrying. It bodes ill for the ugly duckling of culture change ever realising its potential. Nobody said culture change was easy. But it does seem financial services in the UK is making heavy weather of coming to terms with what needs to happen.
“Throw money at it” has always been the bankers’ answer to responding to big change. Right now there’s no shortage of spending on advanced data analytics. Cyber security for example is gobbling up huge sums.
These investments will not raise ethical standards. Nor do they add up to fostering a culture of ethical behaviour.
There’s little sign of senior people in finance getting to grips with raising the bar on ethical practice. For example, the EIU report features a story about German insurance and asset management giant Allianze. It is currently hosting internal discussions about real life ethical dilemmas.
Staff discussions encourage a more collaborative approach to making difficult choices. Using video the CEO shares his own take on some situations. While this approach may be new to financial services, it has been part of the culture of some more switched on organisations for years.
Digital Finance: Meeting Ethics and compliance challenges in financial services, Economist Intelligence Unit, May 2016