Back in 2019, NFL player Jimmy Kennedy had an encounter at J.P. Morgan Chase which can only be described as discriminatory. Recordings were made of US bank employees explaining that his attempts to become an elite ‘private client’, were being frustrated because of his race. Even though Kennedy met all necessary KYC criteria, he was told “… you’re also an African American…We’re in Arizona. I don’t have to tell you about what the demographics are in Arizona. They don’t see people like you a lot.”
The public and media outcry led the bank to state that such comments were “totally unacceptable” and resulted in the creation of a firm-wide leadership team to swiftly tackle any discrimination within its politics and culture. What it will achieve remains to be seen but clearly this is a problem that will take a lot of time and effort to solve.
This is perhaps an extreme example, however it illustrates the underlying issues within the banking and finance sector across the world. Namely that there is not a colour blind approach, whether that be on an individual basis such as the case of Mr Kennedy or indeed where it pertains to entire countries facing the same preconceptions, that are almost inevitably wrong or misplaced.
All talk and no action
The above US example is not unique to the US. A Cambridge University study in the UK for example has revealed that black fraud victims are twice as likely to be denied a refund than white victims. Also attempts to tackle what is widely perceived to be systemic prejudice in Western banking by increasing diversity and taking ownership of past wrongdoings haven’t been as successful as they could be.
Bear in mind that if the UK’s central bank has been slow to act on increasing diversity, then the likelihood is that nor has the rest of the industry. Regrettably, the results of a recent Reuters review of fourteen leading banks confirm, this. It found that most banks don’t publish or disclose their UK ethnic diversity data. What this tells us is that there’s a certain amount of reluctance to accept cultural change and fresh new outlooks in banking.
Tarring emerging markets with the same brush
Given the UK and US – two of the world’s leading financial centres – still have a long way to go on their journeys to address many of these systemic prejudices in their own countries, it is not difficult to start understanding why businesspeople and multinationals from emerging markets might feel they are being treated differently because of their country of origin.
A recently concluded Canadian Commission of Inquiry into Money Laundering neatly illustrates how personal prejudices can create cultures that negatively impact relationships on the global stage. Speaking at the inquiry, historian Dr Henry Yu described AML risk assessments and how easily they can fuel bias. As Dr Yu pointed out, “we are using a storytelling method of saying party officials are corrupt, money made in China is corrupt, therefore money coming from China (is corrupt). If A, then B, then C.”
The trouble with this kind of thought process, as Dr Yu concludes, is that financial organisations end up “tagging all money that seems Chinese as somehow illegitimate.” Generalisations like this can have a bearing on the biases of such influential figures as the then-Prime Minister David Cameron, who in 2016 was caught telling the Queen that countries like Nigeria and Afghanistan are “fantastically corrupt.”
These ideas do not just hurt emerging market multinationals, who are treated with extra scrutiny due to these prejudiced perceptions of illegitimacy, but the countries that they come from. Being tarred as an AML back water, however nonsensical the reasoning may be, means that on a nation-wide level, emerging markets have decreased access to world markets and less foreign investment. This means that prejudice in banking isn’t just unpleasant – it’s also bad business for all concerned.
Lost opportunities and pointless prejudice
Astonishingly, in making these judgments against emerging markets, banks and similar financial entities repeat not only the prejudices that occur within domestic banking, but also the situation that characterises the story of Jimmy Kennedy. Financial institutions are actually missing out on strong and lucrative financial opportunities when their prejudices lead them to dismiss emerging market corporations.
Why are there lucrative opportunities in emerging markets? Just look at the figures: the IMF says that emerging markets should represent 60% of the global economy by 2035, while research from PwC indicates that the younger populations of emerging markets (nearly 90% of people under 30 live in such regions), are more willing to embrace economy-stimulating technology such as online payments. By overcoming prejudiced attitudes, financial entities have the change to make money and help fuel the rise of such markets.
There are even studies out there which actively demonstrate how dealing with prejudice in finance leads to better business outcomes. A study from McKinsey found that when diversity is pursued, for example, earnings increase: “for every 10% more racially or ethnically diverse a company’s senior team is, earnings before interest and taxes (EBIT) is nearly 1% higher.”
Clearly then, in a literal as well as a moral sense, discrimination just doesn’t pay. We might see this idea in action more and more if traditional incumbents don’t reflect on how they can improve their practices. The rise of a number of new innovative digital challenger bankers, who hold modern outlooks and feel a desire to tackle gaps in the market, means that BAME individuals and companies from emerging markets are slowly getting access to less stressful options to cater for their specific needs. Perhaps when banks are hit where it hurts most, their bottom line, discriminatory practices will be tackled with the vigour they deserve and consigned the trash can of history.