James Daley

By James Daley

There's few things that are more depressing in the world of banking than seeing a building society get fined for treating its customers poorly. When it comes to shareholder-owned banks, it's not so hard to see what drives the bad behaviour. Shareholders want more profits, and the easiest way to deliver them is by taking advantage of customers, as most people don't switch their bank even when they've been treated with contempt.

But in the world of building societies, which are owned by their customers and not private shareholders, the conflict between shareholder and customer interests doesn't exist. Everything a building society does should be for its customers. They are its owners and its clients.

When the banking sector came crashing down in 2008, building societies should have been perfectly poised to profit. Customers were ready for a return to traditional banking values, and wanted to shun the complex investment banking structures which had brought down the system. Sadly, many building societies had been up to the same tricks as their privately owned peers - and were in no position to step up to the challenge. Six years later, the sector continues to struggle to make the case that it is different to the rest.

Who's to blame at YBS?

Today's announcement that Yorkshire Building Society - the UK's second largest - has been fined £4.1m for treating its customers unfairly is salt in the wound of the industry's missed opportunity. The fine is all the worse in that the mistreatment related to a section of YBS's most vulnerable mortgage customers. Worse still, it is the society's second fine in less than six months.

Much of the blame for these recent indiscretions rests on the shoulders of the Society's former chief executive Iain Cornish, who left the organisation at the end of 2011. Today's fine relates to failings that began at the end of his term. While its June 2014 fine, for being loose with the truth around its investment products, relates to activity between 2009 and just a few months after Mr Cornish left.

A look back at YBS's accounts shows that Mr Cornish walked off into the sunset with a total package of £742,000 in his last year - a rise of just under 33% compared to the previous year. And what's Mr Cornish up to now? Astonishingly, he's on the board of the Prudential Regulation Authority - the sister regulator of the Financial Conduct Authority, which fined his previous organisation over £5m for failings that he presided over in the year he got a 33% pay rise. Funny old world.

The remuneration may seem like a tangential issue, but it often follows that the building societies who overpay their executives are the ones who are indulging in the same tactics as the banks. Most building society chiefs earn a fraction of the former YBS chief - and rightly so, in my opnion. Too often, executives come over from PLCs and introduce tricks they learnt from their previous employers to bolster the bottom line. The higher pay packets follow.

Unpicking the cultural rot

At the time YBS was in the process of committing the misdemeanors it is now being fined for, I'd argue that the whole society was suffering from cultural rot. Mr Cornish's swansong was to buy Norwich & Peterborough Building Society, which had also been fined heavily for serious failings a few years previously. While the deal was going through, I met N&P's temporary chief executive, and asked her what steps had been put in place to ensure that investment mis-selling would never happen again at N&P. She told me that sales people from a life insurance company had now been installed.

When I suggested that these people may be more inclined to mis-sell than the independent advisers they were replacing, she said that wasn't her problem, as the insurer would be responsible for their actions. I was gobsmacked.

My sense is that, since Chris Pilling took over as chief executive at YBS at the end of 2011, things have been changing across the YBS group. I've been to meet YBS a few times, and there seems to be more humility and a new drive to seize the opportunity to be the good guys of banking.

I hope it's not too late. As it stands, the likes of Santander and Halifax seem to be cleaning up in the banking wars. And the mutual sector's chance to show that it really is different is slipping away.