Abundantly clear in the Report of the Royal Commission is the critical role that culture plays in conduct.
"The COVID-19 pandemic left customers experiencing financial difficulty on an unprecedented scale.”
A lot of water has gone under the bridge since then and Australian banks have made a solid start, changing practice, culture and conduct to improve outcomes for customers. And COVID-19 is a perfect example how banks have changed.
The week of March 16 is one many won’t quickly forget. For most Australians, it was the week the enormity of the pandemic truly hit us. All of a sudden, we were working from home, glued to nightly media conferences from various levels of government, and watching in shock as shops, restaurants, gyms, clubs and bars were closed, flights were grounded. Worst of all, tens of thousands of Australians were put out of work and into Centrelink queues.
Prudentially, Australia’s banks came into this pandemic stronger than they've ever been. Among the best capitalised banks in the world, they had the financial firepower to play a very important role in the unfolding crisis.
Just as importantly, they came into the crisis with the experience of the Royal Commission and all its lessons very much top of mind. Determined to understand and meet the expectations of the Australian community, our banks brought a very customer-focused lens to the challenge.
Generally, when a natural disaster happens - a bushfire or a flood – Australia's banks rise to the challenge. They extend relief to customers on a case by case basis. Sometimes they'll waive debts or defer mortgage payments. But generally, banks construct their own support packages for their own customers rather than approach the issue collectively as an industry.
This time, amid such dislocation and uncertainty, the leadership of Australia’s banks needed to respond in lock step for the benefit of all Australians and the economy.
The COVID-19 pandemic left customers experiencing financial difficulty on an unprecedented scale. They needed to know quickly, simply and clearly the help they could get and how they could get it, irrespective of their bank of choice. They needed to know that no matter what, their bank was ready to support them through this crisis.
ABA Council, the governing body of the Australian Banking Association (ABA) - comprising the chief executives of 15 member banks - convened several times during that week in March to hammer out an industry wide package of support.
It's fair to say everybody came to those meetings with an open mind, understanding the unprecedented circumstances the nation faced.
As a result, loan repayment deferrals were offered to retail and business customers by all ABA banks. Almost immediately bank staff were inundated by customers needing help. In an extraordinary effort, more than 900,000 loans were put on hold for up to six months.
This was one of the most critical national decisions made during the pandemic. Australia’s banks, having built up substantial firepower, resolved to use it to absorb much of the economic shock being experienced by households and businesses, just when the country needed it most.
Coming together to offer a common support package required a cultural shift for a group of natural competitors. It was a powerful demonstration of putting customers first.
Just as importantly, bank staff, right across the industry, embarked on the industry’s largest ever customer reach out process, working with every one of these 900,000 customers to get them back on their feet as soon as possible. Many staff have spoken to the ABA about the daunting size of the customer assistance task. But in the same breath, they have spoken about the pride they feel about the work their bank is doing to support people in real need.
There is, of course, much more that still needs to be done to improve culture and embed conduct reforms across the industry. Appropriately, much of it is being done at institutional level, with each bank considering their own culture and setting their own priorities for change.
ANZ CEO Shayne Elliott said it well when he appeared before a Parliamentary Committee earlier this year and spoke about the “really good progress” being made at ANZ.
“Culture [is] ongoing work and the board has increased its oversight of the broader areas around culture. We have an ethics and environmental, social and governance (ESG) committee of the board, which most of the board members attend. Conduct is a fixed item on that”, he said.
Culture is a new element of operational risk and it is just as critical for prudential stability as bank capital requirements. The Global Financial Crisis showed uncontained cultural risk has significant impact on the stability of the banking system. It is rightly elevated as a board-level consideration.
Importantly, cultural reform is also happening at an industry-wide level. The implementation of the new Banking Code of Practice and the restructuring of remuneration for front-line sales functions are important examples of the industry working together to consistently shift culture.
Maintaining a strong and healthy culture requires a constant and evolving focus, and the ABA has a critical role to play at an industry level. To this end, the next review of the Code of Banking Practice will commence in 2021, the recommendations of the Royal Commission will be legislated and put into practice, improvements to the support for vulnerable customers are being developed, the Consumer Data Right is in progress and a review of professional standards for banking is underway.
It’s a pivotal time for Australia’s banks. Bank staff all around the country are on the front line of a once-in-a-century pandemic. The economic impacts will be felt for a prolonged period and thousands of customers will be doing it tough.
Culture is the result of a multitude of decisions, practices and attitudes of every staff member, every day in every bank. These are now more important than ever and will define the industry for many years to come.
Anna Bligh is Chief Executive Officer of the Australian Banking Association