Financial Services Blog

In our first post, we explored how banks – by addressing employee conduct – could kill two birds with one stone: improving the customer experience while at the same time addressing both the compliance requirements of the new Banking Code of Practice (BCoP), which comes into effect in July 2019, and the findings of the Royal Commission on the financial services industry. Our second post looked at how banks should improve the customer experience, and outlined the expected benefits.

In this article, we’ll examine a third key area: reducing conduct risk. The Royal Commission found the conduct of the financial services industry to be deeply inadequate, and made clear that fixing this means in large part ensuring management and employees avoid past practices.

The BCoP, is one of a number of pieces of local and global regulation designed to lower conduct risk and improve the customer experience. BCoP puts more emphasis on ethical behaviour by bank staff, provides increased transparency into banking products and services for personal and small business customers, and outlines a range of rights and protections for customers.1

It marks a start for the banking industry, yet it has much else to do – particularly in the following three areas:

  • Winning back the trust of Australians in the wake of the Royal Commission’s findings.
  • Taking steps to ensure banks are accountable, their employee incentives are properly aligned, and their behaviour fits what is expected and required.
  • Implementing an effective Conduct and Culture Model that converts the behavioural codes and policies into accountable action on the ground.

Winning Back Trust

As the Royal Commission showed, there are three broad elements at the heart of this crisis of risk culture and conduct: a lack of accountability, flawed incentives and unethical behaviour.

Much of this behaviour falls within the scope of what social scientist Dan Ariely calls ‘predictably irrational’ behaviour – that humans are not the rational observers that traditional economic theory posits. With Australian banking – as with the 2008 global financial crisis – regulators’ assumption that banks were naturally inclined to protect their stakeholders was shown to be false.2

Achieving a customer-centric banking sector requires banks (and other financial institutions, FIs) to institute ethical sales practices, better controls over conduct, and a shift in organisational DNA. That this is needed is evident from the Royal Commission’s findings, as well as the Banking Executive Accountability Regime (BEAR), which came into force in July 2018.

BEAR legislation, which defers senior executive bonuses – and can cut them, if warranted – also outlines significant financial penalties for bank misconduct. Broadly, it requires senior executives to act with honesty and integrity, and in essence looks to improve accountability by creating sound risk cultures and effective governance.3

As the Royal Commission’s interim report shows, more is needed. In particular, existing statutory and banking requirements are complicated and full of grey areas, which has allowed the unscrupulous to get away with bad behaviour. Simplification is necessary – and is also likely, in our view, not least as it is central to the BCoP.

At the same time, banks face other challenges:

  • They struggle to identify proactive and predictive insights that can allow them to monitor and manage business conduct and culture risk.
  • Existing reporting methods typically focus on historical information, such as incidents or complaints, reporting should also provide proactive, ‘forward looking’ insights.
  • Multiple data sources, systems and processes are not integrated or shaped within new digital systems of engagement.

Becoming engaged, ethical, customer-centric businesses means banks should address these challenges.

Towards Accountability and Better Behaviour

The findings of the Royal Commission highlighted:

  • A lack of accountability (banks not recognising their role in the crisis) and a lack of ownership (individuals not being held to account). The BEAR principles help to tackle this.
  • A lack of understanding of the risks and ramifications, driven by a range of factors: poor data quality and outdated procedures for handling data; siloed reporting that culminated in an ad hoc approach to reporting and metrics; and a lack of governance. On the question of data, Accenture research found that nearly one-third of the compliance officer respondents in banking, capital markets and insurance said data quality issues were a key barrier hindering their organisation from delivering on its key mandates in the medium-term.4
  • A lax approach to compliance, in part due to the complexity of regulation which meant there was a higher likelihood that banks would circumvent the law.

The Royal Commission dismissed banks’ defence that bad behaviour was the consequence of a few bad apples, noting that “generally similar conduct occurred in all of the major entities.”5 Accepting the bad apple argument, it said, ignored the root causes, which often lay with “the systems, processes and culture cultivated” by companies.

The solutions lie in a broad range of areas, not least the Royal Commission’s six principles: Obey the law; Do not mislead or deceive; Be fair; Provide services that are fit for purpose; Deliver services with reasonable care and skill; When acting for another, act in the best interests of that other.

Creating the Right DNA

Banks, therefore, must be able to show they are complying with their BCoP obligations, while senior executives need to ensure they are complying with their responsibilities under BEAR.

Managing this requires being able to see and trace risk events, compliance breaches, controls and other incidents across the value chain. That means better access to timely, comprehensive data – which is key to driving improvements in conduct and culture.

Financial services firms therefore should:

  • Identify the right operating model – one consideration is whether to have centralised or specialised areas of expertise; another is to have compliance and risk management teams that are more proactive and coordinate better to meet the demands of a changing ecosystem.
  • Clearly define roles and responsibilities – so that all levels of management and employees are accountable and have ownership of risk.
  • Redefine remuneration models – this is particularly important for senior managers, and tightens the link between remuneration and conduct risk.
  • Apply technology and data analytics – technological advances mean fixing banks’ data failings is far easier. Banks can build or lease tools that leverage intelligent automation, such as artificial intelligence or robotics process automation, and fast-track more powerful data-driven solutions.

Banks that manage this process can expect to rebuild trust between themselves and their customers, and meet the requirements of BCoP, BEAR and the new banking world.

In our fourth and final blog in this series, we’ll look at what banks can and should do to make the BCoP changes real.

For more information on the Banking Code of Practice, read our point of view: “Ensuring Seaworthiness to Chart a Course: How Australian Banking can survive the perfect storm”.

Contributors to this post: Jennifer Pham, Manager, Management Consulting, Accenture; Rimon Nissan, Manager, Management Consulting, Accenture

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  1. Australian Banking Association, “A new higher standard in Australian banking,” July 31, 2018. See:
  2. TEDBlog, “Dan Ariely: 2008 was a good year for behavioral economics,” May 19, 2009. See: Based on Ariely’s book ‘Predictably Irrational: The Hidden Forces That Shape Our Decisions’ Harper (June 1, 2009).
  3. King & Wood Mallesons, “The BEAR essentials: what you need to know about the Banking Executive Accountability Regime,” November 15, 2017. See:
  4. Accenture, “2018 Compliance Risk Study,” March 2018. See:
  5. Commonwealth of Australia, Interim Report, “Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry,” September 2018), p87. See:

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