This is a transcript of the podcasts Jeannette Lichner on the evolution of financial services and Jeannette Lichner on ESG, financial literacy, and why everyone worries about money between GRIP Senior Reporter Carmen Cracknell and Jeannette Lichner, a non-executive director, senior adviser, and executive coach. She also featured in The GRIP Files in August.
[INTRO]
Jeannette Lichner: I think about my career in three parts, which all makes sense in hindsight, but it didn’t make sense as I was doing it. It’s sort of opportunistic. And I say that because people frequently say to me, I stumbled into this, well, most of us stumble into stuff. So it’s OK for any of you guys out there who are just stumbling around in your careers. Everything makes sense in the end.
I was born and educated in the States. I went to New York after university, where I started work with Price Waterhouse and then joined Morgan Stanley. Again, I didn’t know at the time, but I worked for Morgan Stanley for one year in the UK, in the US. And then I volunteered to come to the UK for one or two years. And that was in 1984. And here I am still. And this time of year, I’m often reminded that the weather is certainly not what keeps me here.
Carmen Cracknell: Yeah, you must like it here.
Jeannette Lichner: Well, career wise, it was more it was certainly more interesting. And then I married an Englishman and had children who have now deserted me and moved to the US. So I think they’d be laughing. But it was interesting here because what I didn’t know, I was just a 27 year old who thought, well, that’ll be cool to go overseas. But what I didn’t understand is that’s when financial services was just globalizing. And so there was huge opportunities. With Morgan Stanley, we had 150 people when I arrived, which people can’t imagine Morgan Stanley had only 150 people, we are two floors of the commercial union building. And 10 years later, we had 2500 people. So I kind of rode that wave of growth.
So I think if you go somewhere where there’s growth, there seems to always be opportunity. But for me, that growth also came with a lot of responsibility at a young age. But I also was able to do a number of different roles. So I’m one of these people in financial services that is kind of a master of nothing, but knows a lot about enough things to be kind of dangerous. So I worked in finance, I worked in corporate finance, I was in human resources, I did technology work, I did operations, which moved me into sort of chief operating officer type roles, where you kind of oversight everything that’s going on.
Big pivot from that was when I was chief operating officer for EMEA at Bank of America, we had some issues, and I was asked to go into head compliance and operational risk for EMEA Asia, which I did. And that was a really big pivot. I clearly was not a compliance or regulatory expert. I knew enough, again, to be kind of dangerous, you can’t work in the industry without knowing something about regulation. But it also taught me the importance of valuing my team, because they were experts, and I had to rely on them heavily. And so that was an interesting time in terms of my own leadership style, when I look back on it, and maybe some of them are listening to this, I think that was me at my leadership best, because all I could be was a leader, because I couldn’t be a technical expert. And there’s always that balance between technical expertise and leadership skills.
From that role, that big pivot led me into consulting, and the governance risk and regulatory work, where I worked for Promontory and then FTI consulting, I did a lot of board reviews, I did risk management programs, and we did a lot in the financial crime space, which still is something I’m involved with now. There, I learned how to build the business for scratch, which is what I did from FTI consulting. So learning how to generate revenue, how to get the right staff mix, how to build client relationships was big learning in my career there.
And each of these things that I learned, I took into everything else that I do in my life. I then went into a portfolio career that was about 2016 or 17. And there I became a non-exec director on a couple boards, local trust, which is a tremendous charity that works with left-behind communities. I was also on the FCA board for three years until the end of March this year, which was also very, very interesting, very different angle to financial services, which we’ll probably talk about.
I’m now on the board of the Information Commissioner’s Office, chair of two startups, one in the regulatory technology space in financial crime, which is based in or headquartered in Berlin, and also a consulting firm here in the UK in the regulatory space. I’m also on my university global board that keeps me in touch with my American roots. And I do teaching for the Cambridge Institute of Sustainability and I do coaching and mentoring. So a real mixture. If you look back and look to where I am, it all, as I said, it all kind of makes sense, but it certainly wasn’t elegant.
Carmen Cracknell: Very impressive. I’m really, what’s the reg tech startup you work for in Berlin? I’m interested because I just moved back from Berlin last year.
Jeannette Lichner: It’s Elucidate, we set up a financial crime index. So if you think about Standard & Poors who look at credit ratings, this does financial crime ratings. So it’s been for about three years, heavy technology, you know, all LLM as they talk, talk about it. But trying to come up with a standard so that people can say, OK, this firm is really good at financial crime risk management, and this firm like not so much. We look a lot at payments data, because I always say the proof is in the data. You can say what I can say whatever you want, you know, whatever I want. But what does the data actually tell me?
Carmen Cracknell: Yeah. Yeah, you mentioned, obviously, coming to the UK, and how you’ve stayed here for so long, is that more so that you could have this kind of more international career working in different countries in Europe? Do you feel like the UK context is a bit more open?
Jeannette Lichner: No, I think it was just chance. As I said, I came for like one or two years because it was going to be fun. And it was fun, and it was growing. And then life takes you in different places. And so when I got married and had kids, we stayed here. And also, sadly, my mother who I was very close to, passed away in between my two kids being born, and that kind of moved our center of gravity more here. You can only deal with too many unusual things happening in your life at one time. And so once you get in situ, you need a really good reason to move. I never really had a really good reason, or we never had a really good reason to move.
My husband’s been involved in small businesses, which has also been here. So, you know, it was pure, it just kind of happened. Not a lot of fun. People asked me that they asked me as a woman, when did I decide to have children, whether I decide to continue working. In my generation, we didn’t think these things through, we just kind of did stuff. I think the current generation of people that I know, men and women, and my own children who are 35 and 33, are much more thoughtful about these decisions than I certainly ever was.
Carmen Cracknell: In what way? Sorry, we’re veering massively off my questions. But this is a really interesting topic, actually. More thoughtful. Do you think that’s a good thing, kind of more thoughtful in a good way? Or kind of overthinking, would you say?
Jeannette Lichner: Really, it’s a really, it’s hard to tell. I think it’s useful to be more thoughtful, but the world’s also gotten more complex. You know, as I said, you couldn’t have, you’d be really hard pressed to do the career that I did, all these different areas, because everything is much more specialized. I think there are more opportunities, but there’s also more financial pressures.
I consider myself really lucky. Social economic diversity is a big thing for me, because my parents were immigrants. We grew up with very little, relatively other people, very little money. And I just count my blessings that I had a good education. And I happened to ride this financial services growth wave. There was so much happening. And so, financially, it set me up pretty well. Maybe not as well as others, but well enough. My kids, and I worked, not 24 seven, but we couldn’t work remotely. I would have given anything to have one day a month working from home. I probably would have been more productive, but also it would have made for a better work-life balance. We weren’t in a position to ask for those things in my generation.
Sometimes I think the pendulum swung too far, because I think there is this thing about employee-employer contracting. These are the benefits you get, and this is what I expect from you. And I think it’s hard to have that discussion right now. Getting people into the office is difficult, and I worry, I’m jealous about people being able to not have to come into the office every day, but I also worry that a lot of what I learned, I learned because I was hanging out with other people, connecting with other people.
And I worry for this generation, will they miss those opportunities? And will the people who don’t come into the office compared to those who do, will they be career disadvantaged? Having said that, I think it’s important always to remind people that in the UK, 50% of people have to go into their place of work to do their jobs. So to even be having this discussion is a privilege.
Carmen Cracknell: Oh yeah, absolutely.
Jeannette Lichner: People forget that, I think sometimes. But…
Carmen Cracknell: Oh yeah, no, absolutely. This also was not on my list of questions, but since we’re talking about remote work, what do you see as the regulatory challenges with that?
Jeannette Lichner: Well, there are two challenges from a regulatory perspective. So at the FCA, I joined the board, right as COVID was hitting, and we had a lot of work to do in that period in terms of helping society get through that. So we had the regulatory piece outside, but we also had internal, where we had to deal with our own crises around COVID. Getting our own people into the office is a challenge as it is for many other institutions. And the question is over the long term, can the organization operate virtually to a large extent and still deliver the results that are needed?
I think it’s harder sometimes to really get people engaged in your purpose. Those people are very purposeful. They’re certainly not doing it for financial gains relative to being in industry. But you do feel more connected if you’re hanging out with people who you’re working with. I really do think that, but I do respect there has to be kind of balance.
The other issue we’ve had is how do you regulate this industry? So we’ve all gotten very used to doing WhatsApps and using technology to speak to each other. That’s probably one of the biggest concerns. So during COVID, we all know that young traders might all be sharing a house and they only have one kitchen table. Now hanging around the kitchen table doing their work, that was a really big worry. So I think technology and how technology is used, it can be used for good things, but also it creates a great deal of risk to organizations.
So for the FCA, it’s looking at how do these organizations operate? How do they make sure they have the right controls in place? Now I personally, you’ll hear me probably refer to this later, I’d like industry to figure that out for themselves. I would really like to believe that every financial services firm is doing the right thing. But I also am practical enough to know that sometimes they wait for guidance or wait for reprimands perhaps, firms in the industry to change some of their behaviors.
But I like these firms to be thinking about how do I make sure that people aren’t violating my rules using the wrong technology? Or one of my favorites is around cyber security. We all know we do lots of training around cyber. Everybody has courses and they take them, blah, blah, blah. And the results show that if I go on a training course and you send me a phishing thing saying, please click on this link, there’s an 80% chance I’ll click on that link. So that’s the education isn’t really working. And we all know that you’re only as strong as your weakest link. And if your employees are accessing other technology, websites, etc, through their work technology, you can have a really big problem. And I think it’s getting people to realize what those risks are and why we have the rules that we do.
Again, I go back to way back in my Morgan Stanley days where we didn’t have laptops, we had PCs, and we had things that you stick a disc in. And people would be bringing their floppy disks and putting in their games. And then the Morgan Stanley technology people came around to put tape over them. So people couldn’t do that. And I cannot tell you the incredible uproar. Now that sounds really pathetic and old fashioned. But that’s the world we are in. And I’m always reminded today’s world, or tomorrow’s world, there’ll be something similar to that, right? Should people be allowed to access Google in the office? Should they be able to access their personal Gmail through their office computer? These are all really tough issues that we’re facing today, but they’re also going to be faced in the future. Or there’ll be some other manifestation of it. And I only give that history because sometimes people forget or haven’t been involved long enough to know where we were and where we got to.
Carmen Cracknell: Yeah. That’s interesting. I hear so many people talking about different way to train employees that might be better than what you say, the phishing email system. I think the classic one in our company is the “You’ve won a Starbucks” email. What do you think are better training methods?
Jeannette Lichner: Well, I should first say, and many people who’ve worked with me know, the word “training” really grates because somewhere early in my career, someone said to me, “You train monkeys.” And we don’t have monkeys in financial services. Financial services attracts high quality, smart people. I view it as education, which sounds much more appealing to me, and then also keeping their awareness going.
So if I were running a firm, for example, I’d run the training course, but I’d also say: “By the way, we know the data shows that 80% of you are going to click on this phishing message afterwards. So why not be really upfront with people as to what are the dumb things people are doing?” Or when I was head of compliance later in my career, I’d always say, “Every time there’s a big management meeting, I want somebody from compliance to be standing up saying, “Here are the things that we’ve seen go wrong in the last week.”
So one of my personal favorites, stupid emails. We can have all the etiquette training we want around emails, but people still write dumb things. Now, to be a little bit British about it, we see that in WhatsApp too. There have been a lot of WhatsApps released of what happened within government during COVID. You never think your stuff is going to end up in the email chain or out in the public domain. So helping people understand, think before you actually send an email, assume it could end up in the public domain.
So it’s getting people without being so risk averse that you never take any chances, but getting them to understand what’s the risk of what I’m doing? What’s the worst that could happen with this? We saw this, some of your listeners will remember we had the big debates about, “But this is legal. This transaction is legal.” Then we realized that was not the right question, or maybe that’s the first question. The second question, is it ethical? So always having people understand or get them to think you’re responsible for protecting the firm and doing the right thing for your customers. How do you keep that top of mind? And every time you make a decision, you’re making a risk decision for the firm as well as for the customers. I keep those key principles and then hang everything off those principles.
So when the most junior person is deciding, should I respond to this email or not, they’re thinking, “This could end up in the public domain. I better be a little thoughtful about this.” There are more than a few occasions in my career where I wished I had paused a little bit before I sent an email. And I don’t think I’m particularly special in that. I think many of us do that. You never write an email on a Friday afternoon and press the send button ever, ever, ever, ever, because you do it in a rush and it’s always bad.
Carmen Cracknell: Yeah. One of my next questions, which kind of ties in with this, I guess, how has the regulatory landscape changed since you started your career? It’s a broad question, but if you could summarize in some way.
Jeannette Lichner: Yeah, I’ll try my best. Well I have to say, when I started my career, I wasn’t really aware of regulation. Even here in the UK, when I first arrived, we didn’t really talk about it. Many of the things that were legal then are not legal now. Insider trading. I know a lot of people who made a lot of money from insider trading and that was acceptable. People in the wealth management space, it was not unusual for their clients to gift them things.
I was with a friend recently who said, “Oh, isn’t that a lovely painting.” They said, “Where did you get that?” “Oh, that was gifted to me.” But I couldn’t accept that now. Regulation has changed a lot in terms of expectations, which I think is a really good thing because it’s leveled the playing field. I do think that if you’re in financial services, depending on the function, so I’m talking primarily about if you’re on the revenue production side, particularly, say, equities or M&A or corporate finance, you could participate in deals and actually get quite a lot of wealth. Well, that’s not really fair to everybody else. I say one of the key themes I’ve seen over time is trying to level that playing field amongst those in the know and those not in the know. I think that’s fair.
Again, socioeconomic diversity is a really big issue for me. We have gone between this rules. How many rules should we have should it be principle based? If you look at the key leadership across financial services regulation here in the UK over time, we had a lot of different regulators. Then we consolidated into one in the FCA. Then we split it up into the two, FCA and PRA. Their roles are very different. PRA is much clearer. I always used to tease Sam Woods like, “You have an easy job over there,” right, compared to the CEO of the FCA. Rules are very different and how they execute them is very different. We work hard to stay principles based. I know some of your listeners will say, “Well, then how come the handbook’s so large?” Maybe with the EU, we’ll get rid of these.
Principles based works really, really well if people abide by the principles and if the interpretation of the principles are consistent. I think we’ve stuck to the principles based and then the balances between how much supervision is done versus enforcement. But even better, let’s talk about where I’d like it to go if I can. There’s a guy called Chris Hodges who set out his stall, a big researcher, academic, talking about outcomes-based collaborative regulation. I recommend people take a read through. He has some very heavy papers. I wouldn’t do those, but he’s got some nice 10-page summaries. I’m not on the board of the regulator anymore. I can’t influence it, but I really like this model because what it says is, “Tell people what’s expected of them. Tell firms what’s expected of them.
If they do the right thing, invite them in the tent and let go of them. If somebody is always behaving well, why put resources to supervise them? It’s not necessary. If they do something really bad, then you hit them with a big fine for enforcement.” But working with the industry as opposed to what sometimes feel like we’re working against each other would take us along, I think, a really long way. I’m a big believer that our big problems need collaboration. But it’s also important to remember, which I didn’t even understand until I got on the board of the FCA, is parliament decides what the FCA does. So they set out the statute for requirements and they will mandate if we should focus on something. So for example, last year, who knew that there were pre-paid funeral plans? Funeral plans came into the remit.
It was just announced yesterday that parliament and therefore treasury have decided that crypto firms will be coming into the perimeter for the FCA. Lots of discussion about whether buy now, pay later should come into the remit. And there was just a press release today about buy now, pay later, which is not in the remit, but FCA is trying to influence that. The reason to do that is because if you know bad things are happening to people, you don’t want to wait until it all comes into the FCA to then have to regulate it if we can influence it in a good way.
So I’d like to think that the FCA is getting more proactive in terms of being clear about what is it we want? And I think more firms are coming along with them on the journey, which is very helpful because then it requires less resources to supervise the people who are good. And you can put more resources on people who aren’t behaving. Saying that what’s changed hugely is data. Technology and data has changed tremendously within firms, but also within the regulator because I’m sure people probably know, but you might not. There’s 60,000 firms currently before this new stuff comes in, regulated by the FCA. And I felt there’s mostly in the FCA because that affects probably more of your listeners. 60,000 firms, 4,000 employees in the FCA. You can’t possibly supervise, regulate those without a lot of really good data that tells you what’s going on in those firms. And then comparing what’s the output?
But I remember when I asked, can we get more data around complaints? And I was told it was going to take 18 to 24 months to collect that data because of the process that parliament requires us to go through, consultations, etc. Which I just didn’t understand at all. So when I used to complain, now I feel badly because I used to complain about the regulator when I was in industry. And now realize that those processes were put in place by parliament for the benefit of society.
The consumer duty which people were complaining about in many areas, the FCA didn’t dream that up on their own. In fact, I even thought, do we need that if we had TCF? Well, if you look at what’s been happening, despite TCF, the answer is yes, you need to move the dial significantly. But it was parliament that said, please do it. They don’t, not please do it. You will do it. Yeah, there’s that.
The FCA has to decide what or how is it going to supervise, how it’s going to enforce. But a lot of what they focus on is determined by the government and set out in the perimeter report, the risk analysis, they’re very transparent about what their areas of focus are. And then also they get information coming in from lots of different sources, which they have to collect and decide what to focus on. So none of that existed as far as I can tell, back in the day. But industry also wasn’t as technologically adept either. So we’re changing in tandem. And sometimes the firms get ahead of the regulator and sometimes the regulator might it might feel like they get ahead of the firm.
But I think transparency is really the key. So I was in industry 35 years. I don’t think a board meeting went by when I didn’t say, gosh, I’ve been in this industry a long time and I didn’t know that. So huge, huge learning opportunity.
Carmen Cracknell: Yeah, do you think the regulators have become more preemptive rather than reactive? It sounds kind of like that’s what the FCA is doing.
Jeannette Lichner: I think trying to be. So for a very specific example, when I was in the board, we used to just get this annual business plan. And no, you can’t do an annual business plan. I mean, you can, but it doesn’t really tell you much. So that was when we came up with the idea of let’s set out a three year strategy for people. And then each year say, and this is what we’re going to do to execute on that strategy. And if the strategy changes, you could communicate that. But things don’t change that dramatically in this industry, even though crypto is coming in and new technology, the fundamentals are the same. So they’re trying to be more transparent and bring people along with them again, so that the people who behave well have nothing to fear, right?
So this fear of the regulators which I hear a lot, and I remember that too. If you’re doing the right thing, then you shouldn’t need to worry. And frequently, when I was a consultant, people would say, well, you know, Jeannette, what do you think if I tell a regulator this, how does that sound? I said, well, let me, how does it sound to you? Does your position make good business sense? And how do you how would it play out if you were the regulator? It doesn’t work, right?
So getting people to be more self reflective, and not be scared of the regulator, but work in tandem with them, which is consistent with one of our principles, which is to be very open and disclose things. But if you bring, you know, if you bring people along with you, you require less. And when I used to consult, if I was, and teach, I used to do some teaching for compliance, they used to say, you know what, none of us should have these jobs. Because if industry behaved really well, we wouldn’t need to be oversighting it, right? We’d have a very slim compliance function, because they would just be interpreting what did these new rules and regulations and guidelines mean for our business.
So you’d have a small advisory group, as opposed to our people in compliance who are running around trying to make sure people are doing the right thing. That’s radical. That’s right. I know it’s not going to happen in my lifetime. But something worth thinking about, right? Like, what’s your desired state?
Carmen Cracknell: Yeah. It’s crazy to hear like, that something like insider trading was legal and normal. How long ago? When did that?
Jeannette Lichner: That was like in the 80s. Right.
Carmen Cracknell: OK, yeah.
Jeannette Lichner: So it’s not really not recent, not recent. But again, I mean, it’s not that I mean, I’m not that old. It’s not that long. It was not that long ago. But it is, you know, it is interesting how these things evolve. And why do they evolve? It’s to make society fairer and make sure people aren’t harmed.
Carmen Cracknell: Yeah. Which makes sense. I mean, it’s a good goal to strive for.
Jeannette Lichner: Yes.
Carmen Cracknell: I wanted to ask you about ESG, which is coming under a lot of scrutiny at the moment. How do you see that kind of asset class or category of investments?
Jeannette Lichner: Well, again, you’ve got two different things. One is, because I get involved in ESG, is ESG here to stay? And the answer is yes. I think as industry, we sometimes lose the thought about this is really about sustainability is the strategy. Why does your organization exist? Why should it exist? What makes you special? And I think that’s a really good discipline for firms to think hard about. You know, what’s your sweet spot? And we frequently forget that because we’re so organizations can be so removed from the end customers.
So I think we have to go back to what is ESG about really, it’s your purpose, it’s how do you run your organization. And we have some examples, I’ll pick out standard chartered only because it’s kind of top of mind. You know, financial institution, their motto, as it were, or their description of their purposes, we’re here for good. And when I talk to people I know in that organization, they talk about that, right?
It’s kind of it’s top of their mind back to this education thing is top of their mind. And does what I’m doing contribute to good for people and society? And that’s a really useful thing to do. So that’s the top thing. Now, what happens or has happened in our industry is we focus a lot on the E, the whole climate change. And how do you measure the greenness, for lack of a better word, of an investment. So we’ve taken this big concept and narrowed it down to this small thing, not insignificantly, a very important thing.
But I think we sometimes miss the bigger picture. So I think it is important to be able to quantify the greenness or otherwise of investments or pool of investments. But I think there’s a lot of work to be done there. What’s the important outcome, and I keep going to outcomes and the FCA is focusing on outcomes is we want or the FCA wants people to know when they invest their money, what, where is that going? Is it being invested in something really green, right? Really, really environmental, and they might not get a great return? Or is it being invested in something that’s kind of sort of, you know, somewhat green? Or is it not green at all? And it’s really hard for consumers to see the differences between those.
It’s like when you and I go to the grocery store, right? Am I buying something I like badging, right? So when I go to the grocery store, I can tell if something’s heavy in carbohydrates, heavy, you know, whatever it is, I got this little red, yellow, greens on my thing. You know, ideally, it’d be great if we could do that for investments. But we had some way of measuring what I’m going to call the greenness of a particular investment. And we’re just not there yet. And some firms are resisting doing that, there was a lot of attention paid to it. And now we’ve kind of lost a little bit of that interest is my sense, because of all this other stuff going on, right? Because managers and boards and managers only have X amount of capacity. I think we’ve lost a little bit of attention on that. But I think that the FCA and PRA and other global regulators will talk more to it and try to work to come up with a solution with industry aside how do you measure green? I mean, I mentioned the elucidate that I’m part of before, we measure financial crime risk management.
That’s another thing like how do you quantify that? But we know we’re going to be able to do it at Elucidate, we’ll be able to figure out how to measure the greenness of something, but it’s going to take a lot of firms, individuals working together to kind of figure this out. What has so got the climate, the net zero, the disclosures that are required in financial reports, that’s the E thing. On S, that’s quite interesting, because we’ve been forever talking in the industry about making sure that we take the interest of consumers or our buyers into account and employees as well. And the FCA recently, like last week, I think it was published a consultation paper on diversity and inclusion and what measures what should people measure disability, sexual inclinations, socioeconomic background, a very brave move they had made decisions before around gender and ethnicity. And there’s a lot of discussion as to whether any of those measures should be mandatory, should they not be mandatory.
And I did a blog recently, which said, why does this need to be mandatory? Why aren’t businesses just collecting this data anyway? Because why? Because it makes good business sense. And for this country where we’re desperate for sort of economic growth, if everybody had the same opportunities, regardless of socio economic diversity, which includes North, South divide, all that stuff, if people race at their best level, there’s no doubt that we’d see growth in this economy.
So why, why, why is this something we think regulators, who have a lot of stuff on their plate, should be demanding of people and then going in to audit it? Because in effect, if you put a regulation out there, you can’t just put it out and kind of hope for the best. So that will take resources. So … I would prefer that firms just did it. Every sized firm just did it because it made sense and made some decisions around that. So the regulators could spend time focusing on people who are being poorly treated in other ways.
But that’s just a Jeannette opinion. That’s really not a board opinion. But that’s how we’re seeing the S kind of manifest itself. What’s the culture of the organization? Are they diverse? Are they inclusive? And so the FCA is working on that governance, everybody thinks they’re great at governance. Well, let me tell you, I sit on boards, none of us is perfect, right? We all we all have things that we can do differently, and do better. So even the governance piece, that should not be something we rest on laurels, things have to develop. And the financial reporting council has also put out some recommendations this year, which have just been postponed for a year, about what they want to see in terms of good governance, which includes ESG, by the way, you know, should you have a committee? Should it be a board thing? Should it be a committee of the board? Should it be an advisory board? Lots of different options.
Carmen Cracknell: Is this going to be the major regulatory challenge going into 2024? How to govern ESG? Surely it will be one of the big challenges? What do you think are the main challenges for next year? If you could make a like, because we’re coming towards the end of this year, the prediction is going forward.
Jeannette Lichner: Well, first of all, it’s important to always remember what the role is of the regulator and statutory objectives. And so I always encourage people to go back to those basics, which have also been changed. So the competitiveness objective was added in just this past year. And also ESG became objective or a slight change in that was. So go back to the overall statutory requirements, which they have to fulfill for parliament. In terms of priority or challenges, I think for the regulators, they’ve got internal and external challenges. So the internal challenge, like any organization is prioritization. You never have enough people.
When I had compliance, I had 22, I want to say about 22, well, it’s 22 countries, about 150 people. But we’re supposed to be managing from a compliance perspective, many hundreds. So you can never man mark, as we say in America, right? You have to rely on people doing the right thing. In the UK, as I said, 60,000 firms, 4,000 people. So technology requires a huge investment so that people’s attention can be focused in the right areas. And those are typically where there is the most harm.
Now data will continue to be an issue, whether you’re in the FCA or a firm, getting the right data that you can interrogate, being comfortable and confident that the data you’re looking at represents what you think it represents. And that sounds really silly, but I remember that back from my days when I was in the executive world. It was easy because we had batch processing. So you collect all the trades, you push the button at the end of the day, lots of lovely controls. When we went to distribute a processing, that all went out the window. So making sure every data element you look at means the same thing is a huge, huge challenge.
What I think will also be a big focus here, which is not going to be a surprise, is around the new consumer duty. Again, people say, well, but we had TCF, what’s the big deal? Well, no, what the regulator really wants is for people to really think about their customers, right? And if you think about some basic things like why is it that the FCA had to take enforcement action to get people to think about people price walking in insurance? Why if you come new to the firm, you get a cheaper deal than me who’s been a loyal customer for 10 years. I mean, that just can’t be the right answer.
And we’ve seen there was a lot, there’s quite a bit of misselling in the wealth management space. So we’ve got the retail retail space, and the wealth management space, there’s been a lot of press about a company recently about some of their practices, which you and I would both think, well, that doesn’t seem right, does it? So the really simple message about new consumer duty, which will run for some time, is people need to think about this is how I think about it back to your education point, Carmen.
If you were selling this to your mother or your son or daughter or your siblings, whatever, what would you tell them? Would you give them 20 pages of terms and conditions when they open a bank account? I don’t think so, right? But then you get lawyers involved. And so it’s getting people to rethink, you know, who am I serving? And how do I make sure they have the right information so they know what they’re buying, and they can make an educated decision that also requires a certain amount of financial literacy. So a worry for the regulators, and it’s not the FCA’s job. But what do we do about the education financial literacy level in this country, which is the estimate is it’s about equivalent of a seven year old, right?
Carmen Cracknell: Very bad. Yeah, very poor. I’ve seen companies calling recently for, I think it was, it’s been included in the curriculum in secondary schools to some level, it’s been integrated into the maths curriculum, but not on a super practical level and not for younger kids.
Jeannette Lichner: Now it was, it’s been in the GCSE curriculum since 2012. I only know this because I wrote a book about money for young people and I watched my kids and their friends kind of mess up their lives financially. So I got very involved in that. So it’s been in the GCSE curriculum for quite some time. But there’s no evidence that that’s improved financial literacy. There are calls that evidence shows that from the age of seven, your views on money are well formed. So how do you get parents to think about how do you educate your kids?
We were mean, we made our kids, we give them like 10 cents, 10 pence to go up to the little village shop and buy sweeties, right? That was a bad health thing, but anyway, but good for money training. And they’re both pretty financial. They’re very financially independent of us, but we started that unconsciously at a young age. And why do we do that? Well, because I was an immigrant’s kid, so we watched our pennies and I’m very financially aware, but getting families to do that as well as the education system. But that’s difficult because a lot of families, parents don’t have financial competency either.
So this is a huge societal problem, not only for financial stuff, but maths and also English. Our prisons are full of people who can’t read and who can’t do math.
Carmen Cracknell: Yeah, there’s talk about sort of AI coming to the rescue again with AI financial management tools. Do you think that will be free that people because obviously it’s expensive now to have a financial advisor who’s going to tell you what to do. Do you think it’ll be easier for people to learn that way, money management skills?
Jeannette Lichner: Well, I think we have to look at the different levels of money management. So when we hear people talking about AI for investments, for example, that’s a whole different level of sophistication. You have to remember that like, I don’t know the data, but I want to say something like 90% of people in this country don’t have 500 pounds in the bank account.
Carmen Cracknell: Yeah.
Jeannette Lichner: So what they need to know is how do I manage the money that I do have as effectively as possible. And I think that’s where in my mind the financial education should be. However much money you have coming in, how do you know what that is and how do you spend it? And then once you get that cracked, right, then you can move on to, OK, now what do you do with your savings?
And then once you’ve got that, OK, now what do you do in terms of investments? How do you start savings that you have enough to invest? And I think the mandatory pension on to enrollment has been really interesting. Although I sometimes struggle with, you know, if I’ve just finished school or university and I’m earning 20,000 pounds a year, do I really want to be putting something in my pension? How do you carve that out? So that’s a bit of a tricky, tricky area, but I think AI will be helpful right now if you go in and say, I have 10,000 pounds to invest in Google, I go in Google, I get stuff around investments to make 10% return on equity. And that’s really high risk and the FCA’s been working with those organizations.
You know, I’m hoping that people will use Chat GPT, for example, or any sort of AI to go in and say, I tested this out because I was really curious. You know, I have money to invest, what do I do? I have some say what’s best saving account? What does APR mean, right? People do not know what APR means versus other things. So I’m hoping that people will use that technology to get some basic answers to basic questions, because it’s embarrassing. People are embarrassed to go and say, I don’t understand how should I buy a car? Cash? Or should I take out a loan? Or should I do a lease? And so if they can use that to get the basics, then they won’t be so embarrassed when they go into a car dealership.
So I’m hoping it will help. But I think it’s not the answer. And I think as a country, I would love to see us tackle literacy and education really holistically. This is my political thing. I’d love to see cross party groups, because these are long term problems.
So how do you get the education system, which enables people to manage their own finances? It’s not any better in America. I only know because my kids live there. And the difference is they know if they invest money in something, if it doesn’t work out, that’s too bad. There’s no safety net. Whereas here, we’re sort of more socialist and we expect a safety net. And you see that with the London Capital and Finance and we’re seeing with the British Steel pension schemes. And I’m not making judgments on them. It’s just a question of society wise, we do, there is an expectation of bailouts which they don’t have in the States. They were used to saving for their pensions a long time ago. Now, they have issues in society, which we do, which is there are a lot of people who aren’t well enough educated and who don’t earn enough money.
I was just in California and homelessness is a huge problem. Even bigger it feels like than it is here. So similar issues. So I wouldn’t look to the US for the answer. I guess misery loves company, but we do have some fundamental issues around education to help people be better prepared because there are a lot of firms and organizations working to help with financial literacy. And again, I’ve been involved in it since 2012. And I just don’t see an improvement in it. And that’s really worrying. So I think AI can help, but it’s not the core solution.
Carmen Cracknell: Did you have any success using Chat GPT to advise you about finances? I’ve tried. I actually I had a conversation with an AI expert last week about this. Whenever I asked chat GPT stuff, it’s always like my knowledge is only based on whatever. And I can’t really tell you anything. But apparently there’s like really specific ways to program it to give you the answers you need. So I probably need to spend more time.
Jeannette Lichner: I’m not that sophisticated, Carmen. I just went in to look at things like what does APR mean? Some of these fundamentals. If I want to buy a car, how do I pay for it? So there’s fundamentals. So I think at that basic level, developing an understanding so that somebody can then explore further. I think I was just reading something about the wealth management business and how they’ve been working on this robo advice for some time. Can this do a better job than the robo advice was if they bring in chat GPT? And I think we’ll have to see. It’s really hard.
If you don’t have a lot of money, it’s not hard to figure out your financial position. If you have some money, it’s quite complicated. If you have a lot of money, it’s super complicated. And it’s probably interesting to know that when I was doing research for my book, people who have a lot of money, like tens of millions, they’re not any more knowledgeable than people who are just doing OK because they delegate it to somebody else and they forget how to supervise it. So then they don’t know to question things.
The people who are best at their money are people who are also the happiest, which are people who earn about £70,000 a year. Remember that the average income in this country is £28,000 a year. So they have enough to be dangerous to experiment, but they can’t get into too much. Try that much money. Now how those people are going to retire, I don’t know. But it’s just interesting to know that everybody worries about money because they don’t know what to do. And even if they delegated to somebody else, it’s still a worry.
Carmen Cracknell: Yeah, more money, more problems.
Jeannette Lichner: I’m of the age where people are talking a lot about wills, right? Because parents are passing away, mine passed away a long time ago. I can’t tell you the disagreements around wills and inheritance and how do we structure this? We pay less tax. And we always think, well, aren’t we lucky we get to pay tax because that means we’ve earned incomes.
Carmen Cracknell: Yeah. I was going to ask you lastly, I was going to ask you about your book actually, we’ve kind of touched on that. Advice to those looking to go in, younger people, I guess, those graduating looking to go into financial services, but also on the more personal level financial money management, if we haven’t already addressed that.
Jeannette Lichner: Let’s talk about financial money management first. I think the most important thing to do is understand what’s coming in. And that means your gross salary, we all get shocked. We think I know when my daughter first started working in a pub, and she was getting £10 an hour, four hours, £40, and like, you’re not getting £40 you’re getting less. So being clear about what is your take home pay going to be? What can you spend? And then looking at where do I want to spend it?
So for example, in my book, one of the things I talk about is coffee. I grew up in a world where we didn’t have Starbucks, right? And I have an aversion to not just Starbucks, but like any expensive coffee shop. You can make your own coffee, it’s absolutely possible. You can bring your own lunch to work, that’s totally possible as well. So thinking clearly about where to spend it. So if you go out for a £5 coffee a day, you can do the math, right? Five pounds a day, times 250 working days a year, that’s a lot of money, right? Particularly if you don’t earn a lot.
So making really conscious choices and slowing down some of your spending because the problems come from the spend and the spend exceeding really what you can afford. And this is why we’re so worried about things like buy now pay later, as we’re seeing that people who are using those, not all the time, but frequently also have other types of debt, be it your telephone, you know, your mobile phone device, or Netflix, right? How many people have Netflix, that costs a lot of money. So thinking through how you spend it and making sure you’re making really smart decisions of stuff that you want. And I think that’s that to me, if we could get people to focus on that, everything else will follow. And that will keep them keep people out of trouble, because once you get into trouble, it’s really hard to get out of trouble.
In terms of going into financial services, look, I’ve been in it over 40 years, I think it’s a fascinating industry, it keeps changing. That’s part of the joy of it, it keeps developing and changing opportunities, different opportunities come up. It’s a huge segment that plays a really important part in industry here and in other countries. One thing I do want to mention is when people talk about financial services, they think about salespeople, they think about traders, they think about corporate finance investment bankers. I don’t know the exact data now, but back when I was in industry, 50% of the staff at Morgan Stanley were not in any of those revenue production functions, 50% were in compliance, well, later in compliance, human resources, finance, trade processing, huge roles in technology, be it cyber, digital, systems development.
So there’s a lot of roles that people can do in financial services that they don’t always think about. I found it a great place to learn. You work with really smart people and there’s opportunities, there’s lots of different levels, even the mail room. We still do have mail and we still have some printing, so the things have changed, but it doesn’t have to be that really what some people find an intimidating front office type role. You get really good grounding and then you can move many of these activities, you can take into different industries. I think it’s a great training ground.
Many firms are working hard at building all types of diversity, so apprenticeship programs are in vogue and that’s really helpful and reaching out to people of diverse, many, many different types of diversity sectors. So I think it’ll continue to be really interesting. I’m also a big proponent, just to put two cents in, of people moving between the regulator and industry. I have found it an incredibly interesting, interesting new different lens on things and I think if people understand both sides like I now do, you get much more balance in terms of complaining about the regulator or complaining about industry or celebrating both sides as well if we look at the kind of upside.
Carmen Cracknell: Definitely. If people want to find out more, where should they go?
Jeannette Lichner: If they just look at my LinkedIn page, everything is there.
Carmen Cracknell: Thank you so much.
Jeannette Lichner: Thanks Carmen.
Listen to part 1 of the audio.
Listen to part 2 of the audio.