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Why banks’ top brass should welcome tougher regulation

Making senior bankers accountable is a major step in securing the sector’s future

When we look at Irish banking today we see that trust in the sector is extremely low.

Banking, done well, enables us to achieve what we want in life. Things like owning a home, putting our kids through college, investing in our business, protecting our future, and planning for retirement. These are all key components of a people’s financial wellbeing. But, on the flip side, banking done badly can have a catastrophic impact on us all, on our businesses, the economy, and our wider society. Everyone in Ireland knows this all too well.

I lead a bank that made it a top priority to repay the Irish taxpayer for the support we received. By 2013 we returned €6 billion to the State for the €4.8 billion injected into Bank of Ireland. That was support we should never have needed. Over the last decade, a raft of changes have been made to how banks are structured and regulated to ensure they are stronger and more sustainable, and that taxpayers are protected.

That’s positive, but it’s only part of the story. Improving banking culture is the essential next step. This isn’t “new news” and has started already in a meaningful way. However, I believe more intervention is needed to make a bigger difference.

As any business owner knows, a good internal culture makes your company stand out as an employer of choice

To some, culture sounds soft; like “happy clappy” and “motherhood and apple pie”. It isn’t. Corporate culture is significant and hard to change. The type of culture that exists in any company – including Bank of Ireland – has a massive impact on the decisions that company makes every day and into the future.

Culture is also commercial. As any business owner knows, a good internal culture makes your company stand out as an employer of choice. Customers feel it in every interaction and a positive culture builds customer loyalty. And it lowers risk in the business, and therefore cost. So, improving culture is good for the customer, employer, and owners of the bank.

Senior Executive Accountability Regime

In terms of accountability, a new legislative and regulatory framework is currently being designed. This Senior Executive Accountability Regime (SEAR) will seek to ensure that senior bankers are held accountable for their actions, and outcomes of their decisions.

I welcome this – but why would a banker like me support such a regime, and speak up in its favour?

When we look at Irish banking today we see that trust in the sector is extremely low. This is not surprising, and nor is it unique to Ireland. But while recognising the reasons why this is the case, it’s not a good place to be, for either our customers or – with almost 30,000 people working in banking – our colleagues. And commercially it’s not good either. We should want to have a long-term relationship with our customers, spanning years or decades, and that kind of relationship takes trust.

This is why I would embrace legislation that promotes individual accountability and makes it easier for regulators to fine, reprimand or disqualify senior bankers who create detriment and damage as a result of their poor values and bad decisions. These failures should result in bankers being held to account in a clear and transparent way.

“Statement of responsibilities”

I have firsthand experience of working within this type of framework. In 2016, the UK introduced something similar – the Senior Manager Regime – to what is proposed by the Central Bank. This made senior bankers accountable for their actions and decisions. This included a “statement of responsibilities” that defined specifically what each banker was personally accountable for, a clear process for delegating any responsibilities to individual members of their team, and an explicit expectation that reasonable steps will be taken to meet not only the letter but also the spirit of the regulation. To this day, I remain accountable for the decisions I took when working in the UK. That’s right and proper.

If banking wants to have a sustainable, meaningful future, it has to change

What is being proposed in Ireland would give the Regulator important additional powers. These – once applied on a fair, proportionate and forward-looking basis, targeting the more senior within the sector – would be welcome.

Ireland and the banking sector have experienced a very painful past that won’t be forgotten. However, we now need positive intervention to continue to rebuild trust with our customers and wider society. The banking sector has to put its money where its mouth is. We have to match words with deeds.

From a customer’s point of view, we should want them to have a trusted partner in the major financial decisions they take. And from the bank’s point of view, without the trust of our customers how is our business really sustainable into the long term? If banking wants to have a sustainable, meaningful future, it has to change. Enhancing the individual accountability of senior bankers is a major step in the right direction.

Francesca McDonagh is group CEO of Bank of Ireland