The City is taking steps to increase transparency and tackle the too-big-to-fail problem. But this is about ethics as well as rules
Trust is the crucial building block underpinning success in any financial centre. In the past, City firms and staff were expected to live up to the motto dictum meum pactum: my word is my bond. And, though it may seem hard to believe at the present time, the vast majority still do because not only does this principle support ethical behaviour, it makes good business sense.
In an internationally competitive industry such as banking, clients take their business to financial institutions that they believe are most worthy of their trust. That trust is fundamental to the way the global economy operates given that most transactions today do not involve the exchange of hard currency – notes or coins – at all, but the phenomenally rapid exchange of numbers over the internet and spreadsheets.
This makes the recent revelations about Libor manipulation all the more damaging to the international reputation of the City of London. It is one thing when one bank is involved in a scandal such as this, but it is a problem of an altogether different magnitude when investigations are taking place into the conduct of around 20 banks. It is important to note, however, that those under suspicion are not just British banks: institutions from the US, Canada and other jurisdictions are also being investigated by regulators worldwide.
Of course, the vast majority of those who work in the City had no involvement in or knowledge of such unethical practices. But this cannot be dismissed as a few rotten apples spoiling the barrel. If any further illegal activity is uncovered by investigators we expect the full force of the law to come down on those involved.
The authorities need to get to the bottom of who was involved and hold them to account as quickly as possible. It is only right the industry co-operates fully, but putting politics aside, from the City’s perspective it is the outcome that matters far more than the process.
The reason why this is so urgent is because banking alone – just one part of the whole financial services industry – is an important contributor to the UK’s economy. It employs over 400,000 people across the country and is a world leader in areas as diverse as cross-border lending and foreign exchange turnover. A successful financial services sector drives jobs and growth for all parts of the country – contributing £63bn in annual tax revenues in the tax year to March 2011.
That is not an excuse for bad behaviour – far from it. Indeed, if anything it makes weeding out those parts that fail to meet the required standard all the more important. Only then can we rebuild public trust by changing the culture within those organisations found to have been involved in impropriety.
That means putting capitalism back at the heart of capitalism: more transparency and addressing the too-big-to-fail problem. Contrary to what some of the industry’s critics would suggest, such change is taking place. Retail and investment operations are in the process of being ringfenced as a result of the Vickers report – proposals widely supported in the City of London. Clearly, there is a need to review the way Libor is calculated and also put in place mechanisms such as living wills that enable banks to fail without having to be bailed out by the taxpayer.
Work in these and others areas is taking place but new regulations and enforcement can only do so much to change human behaviour. What we need is a corporate culture where doing the right thing is seen as important, from top to bottom, as obeying the rules.
The City of London is the world leading global financial centre and even in these difficult times, an asset for the UK, Europe and the world. We focus on bringing business to our shores because it has a beneficial ripple effect for all sectors and regions. In fact my colleagues the lord mayor of the City of London and policy chairman have this week been in Russia and China doing precisely just that.
That is why we need to stress the importance of upholding the highest standards of ethics when it comes to dealing with clients, shareholders and the public. Only then can the City prove that we are worthy of the public’s trust.
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