Behaviour in the financial sector is driven by culture, incentives and deterrents and has taken a hit with some high-profile cases making headlines, says one of sector’s most respected leaders.
Australian Securities and Investments Commission Chairman Greg Medcraft—who leaves the commission in November after taking on the role in 2011—says behaviour has to change.
“I think the banks are too slow to realise the world is changing and are now playing catch-up,” he says.
“Certainly, at the board level and senior management level they get it and they’re all really good capable people, they really are . . . I respect every one of them.
“The problem is you don’t change these things overnight. Often the behaviour is pretty simple; we’re human beings and the behaviour is written by three things—culture, incentives and deterrents.”
Medcraft says there should be a rethink on “compliance” in the industry.
“It’s like, ‘why should I be there policing you?’ . . . we just expect you to do the right thing so perhaps there needs to be a rethink even on us calling it compliance.
“I don’t know what you’d call it, but in the new digital world you can’t have police on every corner.
“Perhaps we can call it cultural alignment or values alignment, (something) other than compliance. Compliance sounds like if you tick the box you comply, and it’s not really about values alignment.
“But it should be about values alignment and it’s all about people. If people show by their conduct that they are not aligning with your values, then they probably shouldn’t be there.”
Medcraft’s three key drivers of behaviour in the financial sector:
1. Culture: Do the right thing. If you think about it, if you have a culture that’s just about making sure you do the right thing, you almost shouldn’t need compliance.
2. Incentives: Remuneration drives behaviour. How you are paid directly influences your behaviour. Let’s not beat around the bush, that’s a fact. It might not be in some areas such as medicine.
3. Deterrents: That is at the base level; whether you try and cheat on your taxes and the probability of getting caught and the severity of what happens if you get caught.