11th Feb 2014 06:57
LONDON (Alliance News) - The new organisation set to be established by the end of the year in order to raise standards in banking would provide a "canopy" under which existing professional bodies would continue to develop and grow, with the goal of moving the industry towards the same sort of professional standards seen in medicine and accounting, the Chair of the Banking Standards Review, Sir Richard Lambert, said in a consultation paper.
Lambert, previously Director General of the CBI, pointed to the tough minimum entry qualifications required by other industries, saying that rewarding members who have built up specific knowledge and skills thresholds with 'chartered' status can build up credibility, because the qualifications become highly sought after by both industry organisations and individuals within them.
At first, just the banks and building societies will make up the membership of the new body, because of the difficulties of convincing individuals to sign up to a new professional body with no track record. The members of the committee would make a commitment to abide by and support the professional body's standards across their business and would be required to make a public report each year on how they are meeting these standards.
The standards will apply to all global activities of UK banks and building societies, and to the UK activities of foreign-owned banks.
The proposal is that a small panel, of perhaps four people, should be appointed to choose the chair and chief executive of the new organisation. "We would expect the panel to retain an executive search firm. The panel might include a senior central banker, but no one from the commercial banking business itself, along with highly respected figures from other areas of public life. The chair would join the panel to help select the chief executive," said Lambert.
According to the consultation paper, the board of the new standards body would consist of 12 people and would include bankers, but they would always be a minority. Board members would represent a "full range of stakeholders," such as investors, members of consumer and employee groups, as well as small business leaders, and would be paid.
Lambert said the body's credibility would rest upon its independence from the banking sector - despite being funded by it - and that it would not act as an advocate from the banks, distinguishing it from the British Bankers Association and other trade bodies.
Elaborating on how the new body's authority will built up, Lambert said it must also secure widespread participation across the banking sector, while it would also have develop and maintain credibility with a wide group of stakeholders ? something Lambert noted will take time to achieve.
Despite recommending that the Treasury Select Committee should play its part in establishing the accountability of the new body by calling its chair and chief executive to account at least once a year, Lambert said the accountability of the body remains a grey area.
"A number of existing professional bodies in the financial services sector have Royal Charters, setting out that they are responsible to the public interest. This may not be an option, at least in the early years," Lambert says in the consultation, ultimately conceding the lack of a clear answer, adding that comments on the matter will be welcome.
"There is also a clear public interest in a collective approach to raising standards of conduct. A loss of trust in the banking sector as a whole has broad and damaging economic consequences. In addition, its role as an international banking centre is an important source of comparative advantage to the UK and to Europe, and one that would be damaged by a continuing wave of scandals," Lambert said.
Lambert, who has also served as a member of the Bank of England's Monetary Policy Committee, and before that as the Editor of the Financial Times, was asked to design and chair a new professional body for banking standards by the chairmen of Barclays, HSBC, Lloyds Banking Group PLC, Royal Bank of Scotland Group PLC, Santander and Standard Chartered PLC in September last year.
The decision came after the Parliamentary Commission on Banking Standards, chaired by Andrew Tyrie MP, recommended the creation of a new professional body to promote higher standards in the industry than those that can be left to regulatory authorities.
According to Lambert's consultation paper, the new body would work closely the industry's regulators, the Financial Conduct Authority and the Prudential Regulation Authority, which are themselves working on new guiding principles for the industry.
Lambert also gave his version of what a, "strong and proactive ethical culture in a bank" would look like.
"A strong and proactive ethical culture in a bank will be one in which members of staff are willing to raise concerns, both private and in the public interest, through internal mechanisms which include an effective whistleblowing mechanism," Lambert said.
"The new organisation will help to set the standard for whistleblowing arrangements in the workplace, and to build an environment in which poor conduct in the workplace is reported up the management chain in a way that has not tended to happen in the past," he added.
Britain's banking sector has in the past fallen under scrutiny for the way it has treated whistleblowers, with perhaps the most high-profile case being when HBOS, prior to being taken over by Lloyds, sacked then-Head of Group Regulatory Risk, Paul Moore after he raised concerns about the bank's fierce sales culture with the board. In March 2012, the now-defunct Financial Services Authority said Bank of Scotland's "aggressive growth strategy" between January 2006 and March 2008 had a specific focus on "high-risk, sub-investment grade lending" and would have warranted a "very substantial" penalty if taxpayers hadn't already had to foot the bail-out of Lloyds after the acquisition.
With banks having had to foot a bill well over GBP20.0 billion since 2011 for redress costs relating to PPI and interest-rate-hedging products mis-selling since 2011, as well as several massive fines for manipulation of benchmarks, Lambert said ethical failings have continued well after the crash of 2008. He warned that the sector as a whole had to change its practices.
"This is an industry where individuals frequently move from one firm to another. If the sector as a whole doesn?t change its practices for the better, no reform effort by a single institution is likely to be enough to make an overall difference. Collective action will be required to raise general standards of behaviour," Lambert said.
"Incentives shape behaviour. In too many cases, industry norms have incentivised short-term revenue generation as opposed to the duty of care to customers. So long as this is allowed to continue, banking will fail in its efforts to raise standards of conduct," he added.
Lambert said the new professional body will at all times define good behaviour from the customers? perspective.
Responding to the new proposals for a new banking standards body, Bill Michael, EMA head of financial services at KPMG, said changing the culture of the industry requires an "immense" culture change.
"It is not just about exiting risky business and simplifying products. It is about a demonstrable change in behaviour through all levels of banks. This will take a generation of bankers to work through," Michael said.
"The introduction of a banking standards body is a vital step for the industry to rebuild its reputation, restore trust and put customers at the heart banking. However, we only have one chance to get this right. We must ensure a robust and credible body ? that is not controlled by bankers - is established," Michael added, cautioning that the new body must work in tandem with regulators as, "unconnected activity" could just make things worse by creating a confusing set of standards, rules and expectations.
"This body must have teeth or it won?t be able to make the difference UK society at large needs it to," he said.
Matthew Fell, CBI Director for Competitive Markets, welcomed Lambert's review, saying that the transition to a professional body with individual membership is "appealing."
Lambert will make his final recommendations on the new body at the end of March.
By Samuel Agini; [email protected]; @samuelagini
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