Rhizome Advisory Group's Tamara Scicluna spent 15 years at the prudential regulator, APRA, in roles that spanned supervision, policy and risk advisory across banking, insurance and superannuation. So who better to take a closer look at some of the issues we're seeing at the Royal Commission, and the role individuals can play in shifting culture.
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Taking the Banking and Financial Services Oath is a personal decision, an individual commitment. It is a commitment not just to speak up and raise concerns, but to see these through – with greater commitment to seeing effective and timely resolution. When we talk about culture in financial institutions, it’s normally in reference to a particular institution. While one person can make a difference, imagine what could happen with enough like-minded individuals – to shift the industry behavioural norms and culture, beyond the institutional ones.
The post-GFC decade, and now the Royal Commission, have produced consistent evidence that governance practices have not delivered sustainable customer, risk and business outcomes. The common themes from the Interim Report and hearings have been dissected by many. The sheer number of policy issues, however, reveal that it is far less obvious what can, or should be done – both from a systemic perspective and also from an individual institutional perspective.
What is expected or what is accepted?
The stories and case studies explored throughout the Royal Commission’s hearings have such profound impact because they show the industry at its worst and resonate strongly with personal experience. The affected customers could be you, your colleague, your elderly parents, your children. As the Commission makes clear, such cases reflect systemic issues: it’s not simply a problem of a few ‘bad apples’ – the problem is with ‘the barrel.’ Common industry practices and organisational behavioural norms lead inexorably to poor customer outcomes. Where the status quo is not challenged, it is accepted - as highlighted in the Royal Commission’s Research Paper on conflicts of interest and disclosure ‘employees of the institution act together on similar shared beliefs and in doing so provide exonerations of each other.’
Combined with its almost forensic analysis, there is little that escaped the Commission’s review – and rightly so. At the end of the day this is not just about peoples’ money, it’s about peoples’ lives.
Looking across the issues, at their very essence, we are talking about the behaviours and common workplace practices that have evolved over time and become the norm. Of course, it helps to look at the situation with a fresh set of eyes – it’s very hard to take a truly independent perspective when you come from within the system. While some of the hearings have focussed on cases of ‘doing the wrong thing’, it is far more nuanced to consider ‘not doing the right thing’.
Across the case studies, one of the themes that emerged is around pace – slow transitions to new regulatory requirements, slow investigation and reporting of breaches, slow (and lengthy) remediation of known issues. These are not necessarily about failing to act, it is about failing to act fast enough. So why does it happen? Why were these not given higher priority, or responded to with a greater sense of immediacy? As individuals, we make so many decisions every day that it can be very difficult to look across all of these to even discern a problem, or connect the dots. In a classroom case study it’s far easier to develop the solution because the problem has been identified for you - real life is much more challenging.
Connect the dots
The case studies also illustrate that there are many drivers for poor outcomes. Often, these arise because of issues across multiple dimensions – governance, incentives, accountability, culture – and how these interact and play out. As highlighted in the Interim Report, ‘…neither the senior management nor the board of the entity could be given any single coherent picture of the nature or extent of failures of compliance; they could be given only a disjointed series of bits of information framed by reference to particular events’.
Bringing together these insights and looking at the connectivity across issues provides a more sustainable platform for change. If you can’t see the true drivers of an issue, it is almost impossible to really address it. This requires a new approach within institutions, particularly to bring together blended expertise and not only aggregate issues and themes, but to be able to prioritise those that pose the greatest risk to customer and business outcomes.
Systemic problems require systemic solutions
There are many people and firms discussing the ways that practices can be improved – through stronger compliance mindsets, or increasing professionalism, or through stronger ethical foundations. All of these have a place, but the reality is we also need to change the script. This is not an ‘either-or’ problem – it’s both, plus more. Organisations are complex, multi-faceted and have many dimensions. To truly drive meaningful change across the sector, there has to be system-wide change – within institutions assuredly, for individuals too; and for all the actors that play a part in the system. None of the necessary changes occur in isolation, and to drive sustainable change, we also need to address the relationships between all these different dimensions. Thinking about all of these, what we really need is to tackle the issues that intersect across each dimension or layer of the system and everyone has a part to play in this.