Do you trust your bank?

Enough for them to be the guardian of ethics?

Forged in the embers of the 30-years religious war, one of the greatest humanists of all time, and credited with being the father of Capitalism, Adam Smith, wrote: “Virtue is more to be feared than vice, because its excesses are not subject to the regulation of conscience.”

The aphorism may be appropriate in questioning the interpretation of reputational risk by those financial institutions who within weeks of each other, cut ties with the listed Gupta owned Oakbay resources. So far, no contractual breaches have been demonstrated, despite Oakbay’s challenge for these suppliers to reveal them. Which would explain this picture in my mind of one of the suits in those boardrooms nudging, winking and saying: “Hey, let’s stand next to the bishop on this one!”

This not is to question the intention of the law, but the need rather for a thorough scrutiny of how these prescriptions, apparently applied for the first time on such a scale, can or should be interpreted. Most actions have multiple intentions, and ulterior motives are seldom fully revealed in the absence of full, transparent and expert judicial scrutiny.

Reputation and image.

Reputational risk is a legal requirement as outlined in this dissertation. It is open to subjective interpretation and should only be invoked when the “integrity of the individual bank and perhaps harm to the entire banking system” is threatened. That’s a huge leap and if Oakbay has potential for being that, one could argue that is vital to all who have dealings with them, and perhaps even the community at large. It may outweigh client confidentiality.

This points to brand image being perhaps at least one factor. Then it takes on a completely different flavour. The pedlars of image, very often independent of truth and sincerity, make up a huge industry in the form of branding, advertising, public relations, and lobbyists. A jaundiced journalist such as myself, and I suspect even the average Joe Soap, has long since seen through these cosmetics.

Collective punishment and collateral damage.

As another reflection of the inappropriate systemic regal status of shareholders and owners, a targeting of them is seen as paramount over the interests of other stakeholders. This is no different from the atrocities of collective punishment and collateral damage.

Organised labour has already raised concerns about the 7000 employees that could be affected.  One can assume that for the most part they are hard-working folk with families to support, and have become little more than cannon fodder in these events. Relatively speaking, they will probably lose more than the accused owners. Even if the threat to employment turns out to be little more than company spin, the angst these people must have gone through is still a high price for them to pay. It is broader still. Apart from investors in Oakdale shares, there are customers, readers, viewers, and others who in one form or another could be affected.

Double standards and hypocrisy.

Given the industry’s claim to protect client confidentiality, the fanfare that accompanied the actions is a bit strange. It would be quite revealing to discover which individuals who may pose a greater or equal reputational risk, bank with whom and are audited by whom. Just as interesting would be to know which companies or groups with known legal transgressions, including collusion and anti-competitive behaviour still have preferred client status at these institutions.

But more importantly: who’s watching the watcher? In my original article for Moneyweb, I wrote: “The South African financial services industry is highly rated internationally.”

That may be so. But in a comment to another article, veteran investigative journalist Barry Sergeant asked: “Could you perhaps explain why a good number of South African entities are appearing, very heavily, in the Panama Papers? This is not something that you or anyone else in the South African mainstream media would dare touch. One domestic bank, for example, has its name on more than 24,000 documents in the Panama Papers.”

Sergeant is one of 160 investigative journalists globally who have been tasked with analysing these papers.

Financial services as custodians of ethics.

When you put on the clothes of the Cardinal, you better ensure that they fit. Globally, the sector, including some auditing firms, have perpetrated the biggest financial swindles in history. (See report here.)  The South African industry is certainly not without blemish. Yet they wield enormous power at all levels in society and at the stroke of a pen can make or break an individual or company’s financial status. They are the custodians of our money, our debt, and our financial welfare. Heaven forbid that they become custodians of ethics.

The sector’s global misconduct has invited a barrage of new rules and regulations. But one could also argue that the difficulty in precisely determining what constitutes reputational risk can just as easily be used to enhance the power of these institutions, instead of curtailing them.  The law around reputational risk creates a serious anomaly. Its unilateral enforcement can be highly prejudicial to the “accused”, who have possible redress only after the fact and then through a difficult process via the ombudsman or courts. These in turn will have to consider subjective evidence of risk compiled by the institutions themselves. This procedure is flawed. The unilateral withdrawal of an essential service that can harm a number of innocent parties has to be subjected to an independent hearing similar to a court procedure. Despite its sensitivity, it has to be transparent.  

Just over a year ago, the treasury published a document detailing the shortcomings in customer care in the financial sector. If we have banked long enough, most of us mere mortals would have experienced the inconvenience and embarrassment of an arbitrary and bureaucratic action that even in redress is patronising and unapologetic. This has become more so with diminishing personal contact and electronic intermediaries.

Financial institutions have a serious trust issue. If through the latest action they hope to demonstrate integrity and trustworthiness over and above meeting legal requirements, it may still backfire badly on them. It could easily be interpreted as an abuse of legal prescriptions, especially when quite a number of clients see them as aloof and autocratic. For it creates an impression of an absence of other greater values: such as empathy and customer care.

Then there’s the unthinkable: the possibility of political scheming behind the scenes to settle some scores. If financial institutions with their inordinate power over our destiny become involved in and can be manipulated by these dark forces, then we are in very serious trouble. 

I for one, am left with a sense of disquiet.