Personnel effects: Employee trends in European financial services

A raft of recent legislative and cultural shifts have given rise to new approaches to working practices and guidelines in the financial services (FS) industry in the UK, Germany and Ireland.  Here, we examine some of these trends and consider how they are reshaping workplace ethos in different ways across the sector.

1. Holding senior individuals to account

The first trend concerns individual accountability for senior employees – a relatively new development, where the "directing minds" of businesses can be held liable for the actions of staff who work for the companies they control.

In Germany, German law states that company board members could be liable for any breaches of regulations by employees of that company.

In the UK, there is a duty of responsibility which was introduced under the Senior Managers and Certification Regime (SM&CR).  Under this regime, senior managers will be held individually accountable if they fail to take "reasonable steps" to avoid a regulatory breach occurring within their core area of responsibility.  A report (Senior Managers and Certification Regime Banking Stocktake Report) published on 5 August 2019 by the Financial Conduct Authority (FCA) explains that senior managers are expected to do what they reasonably can to prevent misconduct in the workplace.  

In the same vein, in June, Ireland's Department of Finance approved the Central Bank (Amendment) Bill 2019, which aims to improve transparency and accountability within the FS sector by holding senior individuals accountable for breaches of standards of conduct by junior staff.  These standards of conduct, with sanctions for failure to observe these standards, applicable to both executives and firms, will make it easier for the Central Bank to hold senior individuals to account.  The legislation also aims to introduce a Senior Executive Accountability Regime, a framework which will create obligations for both firms and senior individuals setting out where responsibility for decision-making lies.

2. Encouraging a "speak-up" culture

The second notable trend is a switch in focus from compliance to culture.

In a speech entitled "Making impactful change" given in June by Anna Sweeney, director of insurance supervision at the Bank of England, Sweeney emphasised the importance of fostering cultures that allow staff to speak up about any concerns they have regarding the culture and anything that could affect the financial soundness of the firm. She recommended that firms implement proactive measures such as bullying and harassment hotlines and market-wide culture surveys. 

In Ireland, five banks launched an initiative called the Irish Banking Culture Board (IBCB) in April 2019.  The 14-person board comprises a majority of non-bankers, who work collectively to create and promote a long-lasting and effective business culture in the Irish FS sector.  To mark its launch, the group published its Public Stakeholder Consultation Report 2019, which found that over a third of staff at Irish banks wanted to raise a concern at work in 2018, but two in five of those failed to speak up.  According to the report, those who did not voice their concerns feared that raising an issue would be held against them, or that nothing would happen.  However, the initiative has been subject to criticism because Irish FS firms are financing the IBCB.

It is hoped that the IBCB will help rebuild trust and promote fairer customer outcomes in the wake of Ireland's tracker mortgages scandal, which revealed how some Irish banks had been mistreating customers who asked to switch mortgages to benefit from favourable rates, going back as far as 2006.

To date, there has been less of a concerted push on cultural issues in Germany, where the focus remains on compliance.  This is arguably because Germany is perceived to have tighter rules, procedures and processes in place in comparison to the UK and Ireland, which in themselves create a benign transparent working culture.

3. Moving on and out of the UK

The third and final major trend shaping Europe's FS sector is Brexit.

In anticipation of the UK's departure from the EU, which is currently due to take place on 31 October 2019, many FS firms have been pondering where to relocate their UK operations to ensure they are not cut off from key freedoms for European services.

Global accountancy firm EY's FS Brexit Tracker shows that Dublin remains the most attractive location, having secured the presence of 29 firms, including British bank, Barclays.

Germany's financial capital, Frankfurt, has attracted 22 firms (including Swiss bank UBS and US bank Goldman Sachs) since 31 May 2019, making it the third most popular location.

EY's tracker also states that the direct financial impact of Brexit on major FS firms has reached over £4 billion, with £1.3 billion of this being relocation costs.

Brexit is affecting UK-based employees in the FS sector as employees are being asked to relocate and some companies are making employees redundant.

What do these trends tell us?

It is clear that the FS sector across Europe is characterised by a jurisdictional patchwork of legal obligations and cultural expectations when it comes to personnel and working practices.

The UK is focusing more on culture and individual responsibility, whereas Germany continues to rest on its robust processes and procedures, and Ireland on a mixture of the two.

Brexit continues to threaten further major disruption and significant costs for Europe's FS sector, with the UK standing to lose out to its European counterparts, which have been eager to welcome displaced firms and their staff.

For employers with personnel across different jurisdictions, these trends show that there is no one-size-fits-all approach to dealing with FS sector trends, especially if staff will need to be relocated to different countries and adapt to new rules and cultures, once the UK leaves the EU.

That is why specific expert advice should be sought in each jurisdiction, rather than adopting a blanket approach to dealing with issues resulting from these key European FS trends.  We are advising clients on how to capture and express their culture to their staff and train them accordingly.  For example, this is a topic that comes up frequently in the UK due to the extension of the SM&CR.

Co-authored by Hannah Bignell.