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The Financial Conduct Authority (FCA) has handed out a record retail fine to HomeServe Membership Limited (HomeServe). The fine of £30,647,400 relates to (in the words of the FCA) “serious, systemic and long running failings, extending across many key aspects of its business.”
The HomeServe story is not a new one, with the company already having paid out nearly £13m in redress to customers and with provision made for some £4m more. All of the identified failings occurred before October 2011 and the HomeServe board has since then taken strenuous steps to address issues. In commenting on the fine the HomeServe chief executive, Richard Harpin, said “We have worked very hard over the last two years to put customers back at the heart of our business.”
Amongst issues such as a failure to address compliance problems and a lack of regulatory training amongst senior managers, it is the lack of focus on customer welfare which has contributed to the magnitude of the fine. In particular the FCA took into account the fact that the majority of HomeServe customers were of retirement age and were therefore more vulnerable.
In announcing the fine the FCA’s director of enforcement and financial crime, Tracey McDermott said: “the firm’s culture, controls and remuneration structures meant that staff were focussed on quantity not quality and there were customers that paid the price for that.”
The magnitude of the fine illustrates the way in which the FCA is continuing in its mission to move financial businesses across the spectrum away from a toxic culture which placed short term profits ahead of long term customer care and welfare. In the FCA announcement Tracey McDermott took the opportunity to reinforce this message with an unequivocal statement that:
“Firms must put the interests of customers at the heart of their business if we are to restore trust and confidence in financial services. True change in the culture within the financial services industry will only be achieved when firms and their management accept and deliver on their responsibility to ensure that customers are treated fairly.”
This need to change, to move away from a toxic “me first” culture has been the constant theme of the FCA since its inception. Short-termism, the drive to announce ever increasing profits at whatever cost, may have been good for shareholders and institutions but not for the customers and not for employees. But even for shareholders and institutions short-termism only works in the short term. When the chickens came home to roost, the result was collapse of profits, collapse of share prices, fines allied to a significant cost of redress and across the board redundancies.
More worryingly still, those institutions which were once seen as pillars of our society are now regarded with suspicion and mistrust with their every action scrutinised with jaded eyes. Recent profit announcements were overshadowed by fresh debate on the size of bonus pools whilst Barclay’s move to extend their culture improvement goals to all employees almost went unnoticed against stories of job cuts and misappropriated customer data.
That there is a long way to go is not in dispute and when Barclay’s CEO Antony Jenkins talks about a ten year recovery he may not be far short of the mark. But whilst the success or otherwise of the recovery will be driven by bodies such as the FCA and chief executives it is those who sit further down the chain who will ultimately be responsible for the cultural transformation which is needed. Getting their buy-in to a more collaborative and innovative way of working in which customers and employee engagement and ethics come before individual pay is the task which now faces those at the top. To paraphrase a Star Trek phrase, it is only when the needs of the many outweigh the selfishness of the few that a cultural transformation will truly succeed.