Persistent misconduct and an aggressive sales culture has cost the UK’s banks and building societies £53bn in fines, compensation and legal fees over the past 15 years.
According to research published on Monday the cost of the payment protection insurance (PPI) misselling scandal has reached £37.3bn – about four times the cost of the 2012 London Olympics.
The New City Agenda thinktank, which published the research, said the second most costly scandal – misselling of interest rate swaps – had cost £4.8bn.
John McFall, the former Labour MP who used to chair the Treasury select committee, said: “The profitability of UK retail banks has been imperilled by persistent misconduct and an aggressive sales-based culture. This has made every citizen poorer through our pension funds and our ownership of the bailed-out banks.”
McFall, one of the co-founders of the thinktank, called on shareholders to take a lead in forcing banks to change their culture. “They should demand public and transparent assessments of the progress each individual bank is making. Where senior executives preside over misconduct, shareholders must ensure that they are held accountable and demand significant clawback of bonuses,” said McFall, who sits in the House of Lords.
The report builds upon the thinktank’s warning in November 2014 that the culture of banking would take a generation to clean up after calculating that the UK’s banks had incurred £38.5bn in fines and redress for mistreatment of customers in the previous 15 years.
The report focuses on the retail market so does not include the scandals that have hit the investment banking industry for rigging Libor or foreign exchange markets. It describes the fastest growing retail scandal as the sale of packaged bank accounts, where customers are sold insurance and other products alongside their current accounts. So far it has cost the banks £850m.
Lloyds Banking Group – still about 9%-owned by the taxpayer – has incurred the largest bill of the high street banks for misconduct in the five years between 2010 and 2014. It has put aside £14bn to cover its errors and paid £2.1bn in bonuses over the same period.
The bank – bailed out with £20bn in 2008 as it took over HBOS – has paid out £500m to shareholders, although it was banned from making dividend payments for part of this period.
New City Agenda’s report said that excluding the misconduct costs, the major retail banks would be profitable. “This makes it even more important for shareholders to engage and monitor the progress made by banks in changing their cultures,” it said.
Measuring culture in banks has proved to be contentious. A Banking Standards Board was set up amid the Libor rigging scandal in an attempt to monitor culture in the industry. Its annual report published in March showed that it has not yet published any formal standards for banks.
The Financial Conduct Authority last year faced criticism for dropping a formal review of culture but last week said it continued to regard monitoring cultures as one of its key roles.
Last year, the ratings agency Standard & Poor’s warned that the big four banks faced another £19bn of conduct and litigation charges by the end of 2016 – on top of £42bn incurred in the five years to 2014.
This article was written by Jill Treanor, for theguardian.com on Monday 11th April 2016 11.07 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010