Good Worth Working For: Driving Banks to Deliver Effective Culture - Gráinne McEvoy, Director of Consumer Protection

04 June 2019 Speech

Grainne McEvoy

Address by Gráinne McEvoy, Director of Consumer Protection, Central Bank of Ireland at the New York Fed Culture Conference


Good Morning!

My name is Gráinne McEvoy and I am Director of Consumer Protection at the Central Bank of Ireland. I am delighted to be with you in New York today to take part in the discussion about reforming culture in the financial services industry and to share insights from our review of the Behaviour and Culture of the Irish retail banks.

But before I discuss the review, first let me remind you a little about Ireland’s recent economic history which has a strong bearing on our work.

As many of you will know, Ireland experienced a significant credit-fuelled property bubble followed by a very severe banking and economic crash. The combined impact of the 2008 recession and public support for the financial sector was so great that the government in 2010 entered an €85 billion external support programme.1

In total, the Irish State injected almost €67 billion in to the Irish banks - an enormous sum representing 40 per cent of Ireland’s GDP.2  

The Irish economy turned a corner in 2013. But the road to recovery has been a long one: it was only in 2018 that employment returned to pre-crisis levels.

For the financial sector, many legacy issues remain including high levels of mortgage arrears for consumers and very low levels of trust in financial institutions in general and banks in particular.3

The Central Bank of Ireland has a combined central banking and financial regulation mandate including conduct supervision. In the decade since the financial crisis, we have worked to strengthen the solvency and stability of the financial sector and to enhance protections for consumers.

However, in my remarks today, I want to concentrate on our more recent efforts to drive banks to deliver effective cultures in an effort to protect consumers and support the rebuilding of trust. The last decade has uncovered a wide range of financial misconduct around the world including money laundering, LIBOR rigging and “fees for no service’’ – to name but a few.

The Tracker Mortgage Scandal

In Ireland we had the Tracker Mortgage issue – effectively an overcharging scandal which involved banks denying customers a tracker mortgage or putting them on the wrong rate.

As a result, in 2015, the Central Bank launched the Tracker Mortgage Examination, the largest, most complex and significant consumer protection review we have ever undertaken probing all lenders who ever offered tracker products in Ireland.

The Examination revealed large scale overcharging, which had a detrimental and, in some cases, devastating impact on those customers, up to and including the loss of their homes in some cases. Worse still, some of the banks dragged their heels when it came to redressing and compensating their customers. This unacceptable behaviour raised concerns that they had not properly learned the lessons of the banking crisis and that they were not putting their customers’ interests first.

So far lenders have returned €665 million in redress and compensation to almost 40,000 customers denied a tracker mortgage or put on the wrong rate with the cost to the banks running at about €1 billion.

While we have launched enforcement investigations at all of the main lenders involved in the tracker mortgage issue  - and recently imposed our largest ever fine on one of those lenders4 -  the Central Bank has also separately been focusing on the wider conduct and culture agenda.

We weren’t alone in our focus on conduct and culture. As a result of the widespread public disquiet about the tracker mortgage scandal, the Minister for Finance was also on the case – notably calling in the bank CEOs to meet with him so that he could convey in person his displeasure at how they were treating their customers.

The Minister also requested the Central Bank of Ireland to examine the underlying culture at the five Irish retail banks - Allied Irish Banks, Bank of Ireland, KBC, Permanent TSB and Ulster Bank – and to report back to him.

The Behaviour and Culture Reviews

We teamed up with our Dutch counterparts, De Nederlandsche Bank, leaders in the supervision of behaviour and culture, to carry out the reviews. The review team included experts in conduct, prudential and governance risk and organisational psychology.
It was a mammoth task that took six months to complete.

For example, the team undertook an estimated 1,400 hours of desk based review of a significant volume of information such as business strategies, organisational structures and role profiles.

They also conducted 112 hours – or 14 days – of interviews including interviews with 75 senior executives and board members.  This onsite engagement was paramount in identifying the overall findings.

The team tracked a sample of two recent strategic decisions at each bank, which met two criteria.

First, the decisions involved balancing consumers’ interests with commercial interests – or profit generation.

Secondly, they were complex involving several parts of the bank.

The team used these decisions as a way to gain greater insight into the processes governing strategic decision-making and actual behaviours.

Last year, we published our report on the Behaviour and Culture of the Irish Retail Banks.5 We found that all five banks studied had recently taken steps to reinforce the consideration of the consumer interest. However, the consumer-focused cultures at these banks remained under-developed and all five banks still had a considerable distance to travel.

We found there wasn’t always a collective understanding of what consumer focus actually means. And we noted issues that could potentially stand in the way of a successful transformation towards a consumer-focused culture. For example, we found:

  • Several executive committees displayed “firefighting behaviour”, focusing on urgent and short-term issues thereby hampering their capacity to design a long-term cultural transformation process.
  • Some banks continued to display remnants of the crisis-era mindset resulting in occasional reversal to directive, or ‘command and control’, leadership styles
  • Over-optimism regarding the successful transition to a consumer-focused culture.

Given the importance of diversity and inclusion to fostering effective culture, I should also mention that we conducted Diversity and Inclusion assessments as part of the Behaviour and Culture review. Again, we found that the banks have much more work to do in terms of ensuring their organisations are sufficiently diverse and inclusive, particularly at senior level, to prevent group-think, guard against over-confidence, and promote internal challenge.

The Role of Regulators

Culture is a system of shared values and norms that shape behaviours and mindsets within an institution – the unwritten rules or ‘the way things are done around here.’
Like other global regulators, we recognise that culture is a matter for each firm in the first instance and that regulators cannot prescribe culture for individual firms. It is up to the boards and senior leadership teams to define their values and to set the tone from the top.

However, we believe that an effective culture is characterised by certain traits - including honesty, reliability and integrity - and that regulators can monitor, assess and influence culture within firms in order to guard against conduct risk and drive better outcomes for consumers and investors.

Moreover, we strongly agree with the point made by Cambridge philosopher Baroness Onora O’Neill when she addressed an earlier New York Fed conference – namely the importance of banks demonstrating trustworthiness through their culture if they are to rebuild trust with their customers and with the wider society in which we licence them to operate.6

So, after completing the Behaviour and Culture Reviews, we sent each bank individual reports outlining the concerns we had identified. We also requested the banks to submit Behaviour and Culture plans to address those key risks. And we met with the boards of the banks to impress upon them the importance we attach to ensuring they build a consumer focused culture.

A Mixed Picture

While the findings of the reviews resonated with senior executives, and the banks seem generally positively disposed to building a consumer focused culture, the Behaviour and Culture plans they submitted were of mixed quality.

Only one bank submitted a truly considered, comprehensive plan. Some plans were under-developed, some failed to assign owners to actions, while others displayed insufficient evidence of board involvement. In addition, the seniority of the owners of those action plans varied. Some banks assigned ownership to the CEO, others to the Chief Risk Officer and still others to the Human Resources Officer.

For an action plan to successfully achieve its goals, the owner of such a plan needs to enjoy peer support, command respect in the organisation and be fully committed to maintaining momentum and keeping the change efforts on track, even when faced with other urgent issues.

We have also found that banks continue to show over-optimism with regard to their ability to effect cultural change and tend to under-estimate the time and commitment required to complete the cultural transformation.

In particular, the banks seem happy to tick boxes to deliver structural change – such as setting up sub-committees, changing terms of reference or appointing consumer advocates. But they are struggling with - indeed are sometimes blind to -  articulating the kind of behavioural changes that are required to ensure sustainable cultural change.

The Behaviour and Culture Report makes clear that culture should be driven by institutional standards such as professionalism, honesty, and accountability to deliver fair outcomes that have the interests of consumers at heart. These standards should be promoted from the top down, echoed from the bottom up and visible throughout the organisation.

Firms should ensure the standards to which they aspire are reflected across the business from corporate governance structures to individual accountability; from strategy-setting to product development; from risk management to people management - including how whistle-blowers are treated.

We also observe that some banks struggle to change their crisis era mindset and display a tendency to revert to command and control leadership styles, which may affect progress on the culture agenda, particularly where they face competing priorities.

Some Green Shoots

However, we have seen some green shoots of progress. Given the importance of diversity in fostering effective cultures, it is encouraging that the banks have made some modest improvements in driving gender balance at senior levels in the industry, though they have much more to do on gender and on the wider diversity agenda.

The five main retail banks have also set up the Irish Banking Culture Board (IBCB) with an independent chairman and a majority of non-bank directors including consumer representatives.

The Board, which is similar to the UK Banking Standards Board, plans to focus on behaviour, ethics and culture and to advocate for the interests of bank customers and a sustainable banking industry.

While not a substitute for effective regulation, assertive supervision and robust enforcement, the Culture Board has an important role to play in challenging industry on these key issues.

And the Institute of Banking – which provides professional development and university level education for bankers -   is providing educational qualifications on leading cultural change and ethical behaviour in financial services.7

I am a guest lecturer on the programme and I am happy to report that the students include some of the bank CEOs and other senior management.

It is telling, however, that the IBCB’s first survey of bank employees revealed there is still a hill to climb.

The survey of more than 14,000 staff working across the five main banks found that nearly one fifth of employees see a conflict between their organisation’s stated values and how business is actually done.8 

Fewer than two in five of all employees who raise a concern say they are listened to and taken seriously.

And one fifth say it is difficult to make career progression without flexing their ethical standards.

So I think it is fair to say that, based on our own supervisory activity and the findings of the recent IBCB survey, the hard yards for the banks are still ahead.

Central Bank Reform Proposals

Given that we, like most regulators, are realists, the Central Bank has also proposed an extra nudge into the system to help drive the desired behaviour and culture changes – namely an Individual Accountability Framework.

This would include proposed Conduct Standards for all staff in regulated firms, such as acting honestly, ethically and with integrity; additional conduct standards for senior management; and standards for businesses.

As part of the overall framework, we are proposing a Senior Executive Accountability Regime (SEAR) that would place obligations on firms and senior individuals to set out clearly where responsibility and decision-making lies for their business. We see this a key prong of our culture change strategy.9

As the G30 has observed, this desired cultural shift will require leadership, persistence, and consistency to overcome years of entrenched behaviours and attitudes, and to ensure that the changes are lasting rather than ephemeral, or merely short-term window dressing.10

We know it can be done because we already have some very inspiring examples of how culture can be shifted and how regulation can improve lives. I am thinking of how, in Ireland, road safety has improved and smoking has decreased through a combination of legislation, regulation, industry action and social and behavioural change. 

Good Worth Working For

The late Irish poet Séamus Heaney once said that “hope is not optimism, which expects things to turn out well, but something rooted in the conviction that there is good worth working for.”

I am convinced that driving banks to build strong consumer focused cultures is a good worth working for – indeed is key to enabling banks to rebuild trust and deliver a sustainable banking system for the future. It is in that sense that I am hopeful that we will, in time, succeed in realising our vision of building a trustworthy financial system supporting the wider economy, where all firms and individuals adhere to a culture of fairness and high standards.

Thank you.



2. Of the €67 billion injected, about €30 billion was recovered by end 2017.

3. Edelman Trust Barometer 2018








Acknowledgments: I would like to thank Kathleen Barrington, Clive Duignan, Claire Lanigan, Reamonn Lydon and Jenny Minogue for their assistance with this speech.