Having world-leading ethical standards in banking could only enhance the UK’s position as a global financial centre
The seemingly non-stop scandals engulfing the banks have many different causes, but many have an underlying theme: lapses of ethical and professional standards. These lapses have damaged London’s reputation as a global financial centre, tarnishing its long-held reputation for probity, and left many understandably seething with anger. The industry is now undergoing many reforms to get its house in order, but where do we want to end up? Banks have to be able to show they share the values their customers expect. But more than that, the UK should aim for nothing less than setting the global gold standards in banking, with a regime of professional and ethical standards so respected that the rest of the world looks to us for inspiration.
The question is how you achieve that. Banks are determined to earn back trust in their standards, and have already been making many reforms to do that. But clearly there is much more that needs to be done. The British Bankers’ Association set up a taskforce to examine how the industry can raise standards, and while there is no single silver bullet, there are many opportunities for reform.
The first thing is to strengthen the existing system. We already have a powerful regulatory regime, which is being reinforced with the creation of the Financial Conduct Authority. The approved persons regime authorises over 150,000 people to work in banks and other parts of financial services, and those who fall below expected standards can – and do – have their authorisation withdrawn. But the approved persons regime is limited in the types of people it applies to and virtually invisible to the public. It could be made far more extensive, covering a wider range of bank employees, and it could be made a lot more visible. The regulators could also be more explicit in the training and professional development required of bank workers. People working in banks are already subject to laws on fraud, conspiracy to defraud, theft and proceeds of crime, and more could clearly be done by investigating agencies to enforce those existing laws. In financial services, as elsewhere, the problem often isn’t the lack of laws, but lack of enforcement. The Serious Fraud Office only started full investigations into Libor after the eruption of political and public anger.
More can be done to professionalise banking – making it more akin to the legal or medical professions. This means raising the standards of training and development expected of the individuals working in different positions in banks. The banks are already expanding their use of the various professional bodies and institutes, whose membership is rocketing. However, there could be an independent professional standards board to recognise and monitor the various existing standards and professional bodies, and perhaps oversee a register of all individuals who are professionally accredited.
But there is little point in ensuring someone is fully trained to the right standards if they are then given a remuneration package that rewards unacceptable behaviour. So, as well as the bottom-up approach focusing on individuals, we need a top-down approach, ensuring banks embed higher ethical and professional standards within their organisations.
This could involve the establishment of an industry-wide code of conduct that would not just apply to individuals, but also set out the expectations of banks, their boards, management and pay structures. This code could be upheld by a banking standards review council, which would be independent of the industry and would set, monitor and uphold the ethical standards of banks operating in the UK. It could be one and the same as the professional standards board: a single body upholding professional and ethical standards in the banking sector. Such a body would have to be independent of the industry, with a board that reflects all stakeholders, including users of banking services as well as the wider public interest. If the UK authorities support such a board, the chairmen of the main UK banks have pledged their support and co-operation to make sure it is effective.
There is no point in setting up such a body if it has no credibility, and to have credibility it needs to have teeth. That might mean it needs to be given some form of statutory underpinning, or be linked to the existing regulators, so that it can enforce its decisions. You would also need to ensure there is no confusing overlap or duplication with the existing regulatory regime, as such muddiness would damage rather than enhance public confidence.
If it is done well, then having world-leading ethical and professional standards in banking wouldn’t threaten the UK’s position as a global financial centre, but enhance it. It means that in the global marketplace, people will choose to do business with us. As London has found over previous centuries, having high ethical standards in banking isn’t a competitive disadvantage, but a competitive advantage.