Banking Standards

Submission from ifs School of Finance (S020)

1. About the ifs School of Finance

The ifs School of Finance (formerly the Chartered Institute of Bankers) is a registered charity, incorporated by Royal Charter, with more than 130 years experience in delivering effective financial education. It is the only professional body with the power to award its own taught degrees reflecting the quality and relevance of its qualifications.

The ifs provides financial education to financial services professionals in the UK and across the world, as well as to consumers in the UK. This includes GCSE, AS and A level equivalent qualifications in financial studies through to our own undergraduate and postgraduate degree programmes in Banking Practice & Management; Finance &Accounting for Financial Services; and in Finance, Investment & Risk. The ifs is also the leading provider of regulatory qualifications, for example the Certificate in Mortgage Advice & practice (CeMAP) for mortgage advisers and the Diploma for Financial Advisers (DipFA). The ifs also offers a range of CPD opportunities ranging from entry level to provision for Non-Executive Directors.

2. Response summary

With more than 130 years experience in the delivery of effective financial education to the banking industry, the ifs School of Finance (formerly the Chartered Institute of Bankers) is well placed to assist the Commission with regard to the issue of professional standards in banking.

There has been a significant reduction in traditional banking qualifications since the deregulation of the financial services industry in the 1980’s.

Although the concept of a one-size-fits-all professional qualification for ‘bankers’ is outmoded, unrealistic and probably inappropriate, education and the underlying and ensuing knowledge that then grows with experience empowers bank staff to provide excellent service to the customer as well as giving him/her the intellectual wherewithal to challenge and question internally the decisions of peers and superiors.

Education across an organisation empowers that organisation to serve not just the needs of the customer, but of society at large.

Practitioners, at all different levels, and across all functions, must be appropriately educated.

3. Detailed response

To what extent are professional standards in UK banking absent or defective? How does this compare to (a) other leading markets (b) other professions and (c) the historic experience of the UK?

Recent events from PPI mis-selling to the LIBOR fiasco have demonstrated severe shortcomings in the behaviour of some of those employed within the financial services industry. However, the actions of a few should not be seen as indicative of the behaviour of the many. The financial services industry employs well over one million people in the UK and the banking sector comprises approximately half of this number - of which the vast majority are diligent people, working with the best interests of the consumer in mind. They do so for levels of pay that are far from excessive.

That said, in order to address the failings of the minority, action needs to be taken to improve the culture and standards of behaviour in the industry. Clearly, more needs to be done to restore trust and confidence for consumers, policymakers, the media and the industry itself. A key part of achieving this is to ensure the UK banking sector is staffed and led by professionals performing to the highest levels of competence and ethical behaviour.

Given the wide range of skills needed to operate a very large and complex organisation, such as some of the UK’s big banks, a variety of professionals are now employed all with appropriate qualifications from their respective professional bodies. Some of these professions require compulsory CPD  in order to remain ‘qualified’ to practise.

Within other sections of the financial services industry there is some compulsion when it comes to qualifications. The Financial Services Authority insists that those performing certain roles in the distribution of financial products to consumers meet a pre-determined qualification level. Indeed, from the 1st January 2013 new FSA regulations will come into force that require anyone giving financial advice to hold an Ofqual QCF level 4 qualification as well as undertaking an annual programme of quality CPD.

Such compulsion does not exist for those working in the banking sector (unless they are governed by those rules applying to professions such as lawyers, accountants, actuaries etc. as mentioned above). Indeed, there has never been formal compulsion for anybody working in a bank to take ‘banking’ qualifications. Until the end of the 1980s there was an important understanding that if somebody was serious about a career in a bank, he/she would have to ‘do their banking exams’. The benchmark qualification at that time was the Associateship of the Chartered Institute of Bankers (ACIB) which was the forerunner to today’s ifs School of Finance degree programmes.

Take up of traditional banking qualifications has slumped in the last 20+ years. There is no longer even an expectation that anybody wishing to aspire to top office in a bank should have a ‘banking’ qualification. Witness the number of senior executives in the industry that have a range of qualifications, but not one specifically in ‘banking’.

One of the reasons for the decline has been that in today’s complex financial services industry ,that demands increasing specialisation, the term ‘banker’ could be used to describe a range of individuals in a bank performing a very wide variety of different roles having achieved professional qualifications from a variety of professional bodies. The concept of a one-size-fits-all professional qualification for ‘bankers’ is outmoded, unrealistic and probably inappropriate.

But while the traditional qualification might have been in decline, other more appropriate qualifications are being taken across some organisations contingent on the speciality and skills required. On the other hand, there are those organisations that have in many instances forsworn qualifications in favour of short-term just-in-time ‘training’ aimed usually at skilling staff to ‘sell’ products. The practice of the supermarket was thought to be appropriate to ‘selling’ financial products.

However, we are now also seeing some examples of good practice, especially over the last 12-18 months. For example, some of the large high-street banking firms in the UK have started to put their staff through qualifications such as the ifs School of Finance’s recently developed Certificate in Retail Banking Conduct of Business (CertRBCB®) and Diploma in Retail Banking Conduct of Business (DipRBCB®). These qualifications for frontline bank staff have been taken by over 5,000 bank staff. This number is expected to more than double over the next 12 months. The point of these qualifications is to raise the bar in terms of knowledge, understanding and application of the Banking Code so as to improve customer service.

Furthermore, some banks have made the ifs Professional Certificate in Banking or Diploma in Banking Practice & Management an integral part of their management and executive trainee schemes.

Consequences of the above

Consumer trust in UK banking has clearly been affected by recent events. August 2012 research from consumer group Which? suggests that 84% of consumers think that the banking industry has not done enough to change to ensure another credit crunch does not happen again - an increase from 76% in September 2011. Similarly, 71 per cent think banks have not learned the lessons of the financial crisis that began in 2007 – up from 61 per cent a year ago.

The public used to trust their bank to look after their money and their bank manager to give them suitable advice based on their individual needs, aspirations and attitude to risk. This advice was given by appropriately qualified staff that had knowledge of the products they were advising on.

In recent years, against the backdrop of an increasingly pressurised sales and target driven culture, retail bank staff became less and less knowledgeable about the underlying structures and risks/benefits inherent in the services and products they are being told to sell.

The wholesale side has mirrored this steady decline away from customer-centric services, but here the movement has been towards engaging in excessive levels of risk as a result of the desire for both personal gain and the need to meet often unrealistic growth targets to meet the need for ever-increasing shareholder returns.

Both of the trends have had a corrosive effect on trust and confidence in the sector.

The public rightly expects the banking industry to meet the highest standards in relation to skills, knowledge, trust, integrity and ethical behaviour. The apparent decline in these standards in some parts of the industry and in some organisations did not begin with the financial crisis of 2007. The seeds were sown much earlier, with the deregulation of the market in the 1980s and the drive by traditional commercial banks for those ever-increasing shareholder returns. Those boring pillars of the community and the bedrock of economic stability had joined the high risk strategies of the investment banking world. Oil and water do not mix. Restoring trust and confidence will not be achieved overnight and the consumer does not believe the industry can put its own house in order. Self-regulation and so-called light-touch regulation will not work, has not worked, and the consumer will expect the Government and/or regulatory bodies to take a leading role in solving these problems.

What has caused the problems identified above?

It is also worth noting that innovation has had some impact on this area. For example, a wide range of decision making has been taken away from suitably qualified branch staff and replaced with automation thus bringing about a loss in individual skills in assessing loans; weakening the customer/banker relationship; and having serious implications for the wider economy in tough economic times when suitable individuals and organisations are denied loans.

As an organisation we do not wish to comment further on the causes in relation to the Commission’s suggested themes of corporate structure, competition, taxation etc. as these are outside our remit.

What can and should be done?

As our suite of qualifications demonstrates, availability of appropriate qualifications is not the problem; it is the uptake of such qualifications and CPD that needs to be addressed

As we have noted, complexity in modern day banking has led to an increasing degree of specialisation. This requires a range of skills and competencies provided through a variety of professions. However, there is now a need for education leading to qualifications at different levels within these large complex conglomerates. Collectively these qualifications encompass frontline retail activities through to corporate business and challenging risk-based analysis. To repeat, the one-size-fits-all qualifications of the past are not appropriate today.

As the leading provider of educational services to the banking sector in the UK we have always avoided making any call for a one-size-fits-all mandatory professional qualification or for compulsory membership of a professional body. These calls belie the complexity of the industry. They are an over simplification believing that there are easy tabloid-headline grabbing solutions.

This is about culture and there are no quick fixes when it comes to culture. An organisational ethos is built up over decades, lost in an instant. Education and the underlying and ensuing knowledge that then grows with experience empowers the individual to provide excellent service to the customer as well as giving him/her the intellectual wherewithal to challenge and question internally the decisions of peers and superiors.

Education across an organisation empowers that organisation to serve not just the needs of the customer, but of society at large. And that is what banks are meant to do, serve a much wider social remit than their own narrow interests. Our current economic malaise is due to the industry forgetting this key responsibility.

Practitioners, at all different levels, and across all functions, must be appropriately educated. The key word here is ‘appropriate’.

Other matters

When it comes to ‘codes’ for governing behaviour or standards for skills and competencies or a range of qualifications to educate practitioners, few sectors in the economy could better the banking sector where the list is almost endless.

Yet despite this plethora of ‘codes’ and ‘standards’, including those already supposedly enforced by the regulator, public trust in banking is at rock bottom. Another list of ‘standards’ or yet another ‘code’ will not make any discernible difference to public perception that the industry is simply not capable of self-regulation. The Commission must avoid falling into the trap of wanting to be seen to be doing something and so coming up with yet another list of do’s and don’ts that will be treated with inevitable and understandable scepticism.

One way the Commission could encourage a long-term view of culture is to ensure appropriate regulatory (Bank of England) scrutiny and vetting of all staff (and not just the executive committee) appointed to senior positions in a bank or indeed any financial services organisation. It is not a guarantee of probity, but an independent look at background, education, attitudes, performance etc would put both candidate and organisation on notice that the regulator is looking for the right calibre person with the appropriate credentials. The FSA has had a role in this process, but it needs to be widened and deepened.

24 August 2012

Prepared 22nd September 2012