Ms Derville Rowland:

The global phenomenon of misconduct scandals has been clear in this jurisdiction, as in others. The culture report gets underneath the matter in a way that is different to the enforcement action through being backward-looking and looking at breach of rules. The culture report gets inside the mindset of what is really going on. It is insightful because these are the words and the thinking of the executives themselves, as well as the teams reporting to them. For the first time, there is insight into what is going on with the thinking used to motivate the outcomes seen for customers, which the committee might view as unacceptable. It explains a little why we are in this place. For change to happen, the businesses need to accept that they must be in a different place and know what the problem is. They also need to come up with a very detailed set of approaches that are meaningful and deliver that changed outcome. We are getting deeper and closer in our intrusiveness in conduct regulation. That is the phenomenon that is occurring.

We will make evaluations of risk mitigation programmes and meet the boards. We will do that with colleagues to ensure they are comprehensive and deep enough. This will require the businesses to apply and deliver those programmes. The jury is out on whether we can expect that to occur. The evidence before our eyes is different from the espoused ethos of consumer focus that we hear of. As we can see it, we are practising sceptical and intrusive supervision. The consumer protection risk assessment approach that we know must be put in place means we expect those firms to have a comprehensive conduct risk framework in place so they know that when they take decisions at a board level about new markets, strategies or profit versus consumer interest, that consumer interest would be properly considered and put in the centre. When designing products, they should not look at the product that they have and wish to sell to customers in order to generate profit. Rather, part of the thinking should be to ask what the benefit is to the customer, who the target group is and whether they are selling to the target group.

It is only through breaking this down into the component parts of how the businesses are governed, the way the products are designed and sold, as well as training and incentives to staff can we see the real change being effected. We recognise we will have to get granular and do very detailed work but the obligation is on the businesses to change. The culture report is a different kind of intervention from the enforcement cases. In order to effect the change we wish to see, the companies will have to embrace it. We know where the key transmission points to customers are in the sales process and we know where the deficit of thinking might be in the board level process. We will have to check that to ensure the businesses are doing what they should to develop consumer culture.