Thirty years ago, an economist making a keynote speech at a bankers’ conference told the audience that to succeed in a liberalised financial services market, they must forget they are bankers and become salespeople.

This economist’s mindset was by no means unique at the time. Following the ‘big bang’ reforms that liberalised European banking in the 1990s, most banks grafted a sales culture on their business strategies characterised by principles of prudence in handling shareholders’ and depositors’ money. But the short-sightedness of those promoting an aggressive sales culture in retail and investment banking soon resulted in a catastrophe of scandals in many countries worldwide.

One of the most incisive analysis of the effects of a toxic sales culture was made in 2018 by the Australian Banking Royal Commission inquiry into the country’s scandal-plagued financial sector. The sole commissioner was a former justice of the High Court of Australia, Kenneth Hayne. The government asked him to investigate the alleged mis-selling of products by Australia’s ‘Big Four’ banks – Commonwealth Bank of Australia, National Australia Bank, ANZ, and Westpac – to vulnerable customers.

This inquiry resulted from a whistleblower, Jeff Morris, highlighting the abuse of aggressive sales practices in the Commonwealth Bank where he worked. Morris’s comments reflect the cultural failures in Australia and most European countries infected by the toxic climate that followed the ‘big bang’ reforms in financial services and the adoption of US sales culture.

Morris argued: “The history of Australian banks is good, honourable, and an important contributor to national economic growth. It was in the 90s when things began to change. American sales cultures came in, and banks got infected with the remuneration US banks had always paid. I noticed the mentality of banks; they lost their way and sight of their history.”

Much has been said about what corporate culture is about. It is generally agreed that culture is difficult to define and measure. It is even more difficult to impose by legislation. Even if it was not so difficult, financial services operators employ an army of legal experts to pick loopholes in legislation and use them to their advantage.

The short-sightedness of those promoting an aggressive sales culture in retail and investment banking soon resulted in a catastrophe of scandals in many countries worldwide

Courts are not there to decide on moral issues but to interpret and apply the law, even if such an interpretation may fall below community expectations of what they understand by fairness. Expecting courts to be watchdogs of business ethics is unrealistic. When self-appointed consumer rights vigilantes fail to understand this reality, they show that their real interest is not the assertion of the rule of law but feathering their own nests.

Commissioner Hayne described culture as the “shared values and norms that shape behaviours and mindsets” within an organisation, describing it as “what people do when no one is watching”.  Recent changes in the Australian banks’ sales processes are similar to those adopted in other countries with similar negative experiences with toxic sales cultures. Regulation on conduct risk, governance and consumer protection went into overdrive.

Some now argue that the pendulum has swung too far on the opposite side. Some financial institutions are overwhelmed with regulatory requirements to ensure that customers are treated fairly. Employees are still expected to promote sales while dealing with copious box-ticking documentation to satisfy compliance requirements. This operational tension may be affecting morale.

Banks with a business model characterised by vertical integration of advice, retail banking services, wealth management, fund management, and insurance face an even more challenging situation as this model amplifies conduct risk. Some Australian banks, for instance, are considering selling part of their business and concentrating on core banking functions to manage conduct risk.

Regulation around new capital requirements for banks and other financial institutions creates more cost, which is being passed on to consumers. There are ethical implications around the extent to which the customers should bear compliance costs.

Ron Shevlin is the director of research at Cornerstone Research. He argues that the answer to making banking fairer and compliant with standards the community expects is for banks to build better digital marketing capabilities, giving consumers as much objective information as possible. They can then let them decide what is best for them. This may be less arduous in the long term than retraining staff to retain the sales culture.

Bankers need to emulate the medical profession and become genuinely customer-centric to achieve the level of trust that the community has in doctors. Aligning culture with compliance will never be easy, but it is the best way for banking to achieve a better future.