Overhauling the culture of the City requires a generational shift in attitudes akin to that seen for drink-driving in recent years, according to one of the most senior regulators at the Financial Conduct Authority.
Tracey McDermott, who as head of enforcement has handed out a record £1.4bn in fines this year, said the onus was on firms, not the regulator, to engineer the change in attitudes required. Individuals need to be made aware of the impact of their work on society, not just see their wrongdoing as hurting faceless victims.
“Rules cannot simply be put in place that paper over cultural deficits, rules can actually encourage people to abdicate responsibility; if the rulebook doesn’t say it’s forbidden, it must be OK,” she said.
McDermott chastised firms for issuing statements that “read a little like PR paint-by-numbers” by blaming misconduct on a few and insisting lessons would be learned. “Of course it did happen again,” she said.
After the Libor scandal – for which Barclays was first to be fined in June 2012 – the rigging of foreign exchange markets was uncovered and resulted in the FCA fining five firms a record £1.1bn last month.
McDermott said: “The cultural change we are looking for is perhaps analogous to the shift in attitudes to drink-driving between my parents’ generation and my own. For my parents and their peers, reluctance to have a drink and get behind the wheel was mainly because they were scared of being caught. This was not seen as an ethical dilemma ... The fear is in the fine.
“For my generation, however, drinking and driving was presented as a moral issue. We were made to think about whether it was right or wrong by forcing us to focus on the impact it could have on others’ lives.”
Martin Wheatley, the chief executive of the FCA, said that more needed to be done to push through changes from the top of organisations, as he told a City audience that “the industry remains in the foothills of cultural reform”.
He added: “Why are conduct messages, like Chinese whispers, seemingly corrupted on the way down, from top to bottom of organisational hierarchies? And how long are leaders prepared to wait for corporate reform programmes to take effect?”
Changes, McDermott said, would take time, and more wrongdoing would be uncovered. The industry should take the punishment seriously.
“The vital point will be to make sure those difficult times are used as a lesson – not simply for the individuals and firms directly involved but for all in the industry. Enforcement cannot be allowed to be written off as if it were a visit to the headmaster’s – or indeed mistress’s – office where you take your punishment and leave,” she said.
She defended the scale of fines, against those who argue they are too high and those who insist they could be higher, by accusing the FCA of running “a Soviet tractor factory”. There was no target to keep issuing greater fines, which now go to the Treasury after the chancellor, George Osborne, changed the rules following the Libor rigging crisis to stop them going back to the regulator.
McDermott dismissed the idea that getting top bankers to take an oath would improve the culture but said an ethos needed to develop so that bankers understood the impact of the industry on broader society.
“The creation of a shared ethos not unlike the ‘above all, do no harm’ that exists in medicine might help ensure those in our industry understand that they have a responsibility to each other, to their shared profession and, more importantly, to wider society,” said McDermott.
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