Mon, Jul 27, 2015
“It takes 20 years to build a reputation and five minutes to ruin it.” (Warren Buffett)
Since the start of the financial crisis, we have witnessed a cataclysmic shift in both the perception of financial services firms and the manner in which firms are regulated.
Historically, customers and politicians alike placed trust in personal financial advisors and the wholesale market on the belief that integrity, sound morals and clear ethics were commonplace.
However, much has changed since the fall of Lehman Brothers in 2008. Firms and regulators have uncovered multiple examples of poor conduct, mis-selling, market manipulation, unethical behavior and failures in governance, systems and controls.
Research from the CCP Research Foundation indicates that conduct related costs were over £200 billion globally between 2010 and 2014. These costs span failures across retail, corporate and wholesale and impact the spectrum of financial services from banks and insurers to asset managers and intermediaries.
Since then, firms have either voluntarily or upon request from the regulator exerted significant time and resources in identifying these historical issues and remediating them where necessary.
Whilst firms incur significant costs in undertaking these Past Business Reviews (“PBRs”), they offer firms a unique opportunity to demonstrate that the future will be different from the past. Specifically, they offer:
Notwithstanding this unique opportunity, we have seen mixed results. Some firms have welcomed the opportunity with open arms whilst others have suffered through mismatced expectations, devoting inappropriate and insufficient resources and implementing an ineffective approach to customer engagement.
By way of example, in June 2015, Lloyds Banking Group was fined £117m for failing to handle PPI complaints fairly whilst the Bank of Beirut received a £2.5m fine in March 2015 for failing to implement the ‘remediation plan action points’ identified by the FSA/FCA in prior years.
Duff & Phelps’ Kinetic Partners division has undertaken a plethora of PBRs across the financial services spectrum as well as acting as trusted adviser to firms subject to a regulatory investigation. Whilst all PBRs are bespoke in their breadth, service line and depth of review, we identify some common areas of best practice:
Ultimately, firms must enhance their governance, systems and controls whilst working on identifying and mitigating Conduct Risk to ensure that the issues of the past do not continue to be problems of the future.
“It takes less time to do a thing right than to explain why you did it wrong.”
(Henry Wadsworth Longfellow)
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