The Australian experience is illustrative here. In financial advice, where the highest profile cases of “cultural challenge” have arisen, both prudentially regulated banks and ASIC regulated finance companies and advice firms have been found guilty.
Yet the bulk of the losses to consumers have occurred with institutions not prudentially regulated by APRA – although some have had collateral financing arrangements via banks.
The difference is, banks can be held responsible, fined, given enforceable undertakings, more closely supervised. Other institutions tend to fail – taking funds with them and the financial security of consumers.
This is not an argument for regulating banks less rigorously or shifting the blame. But it is a recognition the unregulated sector – and “shadow banking” or “collaborative financing” would fall into this category - is growing rapidly and its cultural challenges will be great and less contained.
In some cases, the unregulated sector, particularly shadow banking, is growing because of the new regulation coming into mainstream banking. As banks pass on regulatory costs, their products rise in price and more lightly regulated institutions become more competitive.
"Much of the post-crisis reform agenda has been aimed at getting the organisational interests of financial firms more aligned with those of the wider community,” APRA's Byres said. “Getting personal incentives correspondingly aligned with organisational interests needs to be seen as equally important."
This is spot on. It is also much harder outside of the regulated sector.
The consequence of disintermediation and the rise of collaborative platforms is not just an issue in financial services.
In the US, the taxi industry is complaining it is at a competitive advantage to the ride-sharing platform Uber because it is required by law to cater for the disabled – which is socially desirable – but is then at a cost disadvantage to Uber which isn't.
One of the legitimate arguments the hotel industry makes about home-sharing sites such as AirBnB is such informal “hotels” don't have to comply with the same regulatory systems as hotels – from occupational health and safety to hygiene to consumer protections.
This is also an issue for landlords: it is one thing to own a property which houses a hotel managed by Hyatt or Hilton. What happens in an apartment building where some of the owners are sub-letting their apartments? Who is liable for damage to common property and how do other owners enforce rules?
The market answer is that, in the long term, superior culture – which brings in service for the disabled in ride-sharing or being a responsible owner in an apartment building – delivers superior returns.
ASIC's Tanzer cited research showing institutions with superior culture tended to compete more effectively, had higher customer satisfaction and better customer retention. Poor culture created risk and could lead to significant costs, such as fines, remediation and brand damage.
The regulators argue culture is set at the top and this is right – in traditional, hierarchical institutions. What happens in modern, collaborative, dispersed structures? Who sets the culture?
Ultimately, one of the promises of the collaborative economy is that we all do – the best rooms and best guests receive the highest peer rankings. That is true in aggregate but it becomes more challenging when a service sector is a hive of small, independent operators.
Governance is a challenge at the best of times. In financial services, we know the vast majority of miscreants are male and come from male-dominated cultures where financial rewards tend to be predominant as measures of success.
Steps such as better gender equality, more diverse boards, directly addressing exclusionary practices can all make a difference.
In dispersed and disaggregated – let along unregulated – corporate systems this can be much harder.
Culture can have pervasive effects even where the cultural intervention may seem minor. One of BlueNotes' most popular stories has been ANZ head of human resources Susie Babani's reflections on fashion in business. It sparked a lively conversation.
Yet in the media industry, there's the case of an executive who banned casual Fridays in an attempt to instil more professionalism – productivity and especially creativity fell. And talent left.
This is not to say culture should not have the central role being posited – it most definitely should.
The challenge though is in the implementation of appropriate cultures if it is not to be through the very visible hand of a regulator.
In the US, non-bank lenders have already surpassed US banks in holdings of government-backed mortgages – a result of regulation and fines causing conventional banks to pull back from the $US9.8 trillion market.
New data show “shadow banks” such as Quicken Loans, PHH and loanDepot.com accounted for 53 per cent of government-backed mortgages originated in April — almost double their share in April 2013.
The Financial Times noted “shadow banks perform bank-like functions such as lending but are subject to lighter supervision because they are funded by professional investors rather than retail depositors protected by government insurance schemes”.
US regulators are now trying to rope the shadow banks closer – Quicken has been sued by the Department of Justice for breaking rules and has in turn counter sued. Other government bodies are trying to hike standards for non-banks. Mortgage insurers too have noted some slipping in standards.
Global regulators are also trying to broaden their supervision to include fund managers – particularly as huge managers of assets are also increasingly playing the financing role of banks and their size potentially makes them systemically important to the stability of the global economy.
Giant fund managers disagree they are a risk because, they argue, they don't take deposits and are not being backed by taxpayers – implicitly or explicitly. Obviously they still manage people's money.
Of course, none of these non-bank models are inherently more or less likely than banks to lose their customers money – that depends on their business model, their management and the risks of the markets in which they operate. And culture.