Parliamentary Commission on Banking Standards - Minutes of EvidenceHL Paper 27-III/HC175-III

Back to Report

Oral Evidence

Taken before the Parliamentary Commission on Banking Standards

on Monday 14 January 2013

Members present:

Mr Andrew Tyrie (Chair)

Mark Garnier

Baroness Kramer

Mr Andrew Love

Mr Pat McFadden

Lord McFall of Alcluith

Lord Turnbull


Examination of Witnesses

Witnesses: Gavin Shreeve, Principal, ifs School of Finance, and Simon Thompson, Chief Executive, Chartered Banker Institute, examined.

Q2381 Chair: Good afternoon. Thank you for coming to give evidence this afternoon. May I begin with a question to you, Mr Thompson? Fred Goodwin, I gather, is a member of the chartered institute. Should he be?

Simon Thompson: He is a member of the chartered institute. He was made a fellow in the mid-1990s. One of the great issues for professional bodies in banking is that we have no statutory or regulatory powers, and we find it very hard to investigate conduct issues. We can investigate issues of student misconduct, and members’ failure to submit evidence that they have completed CPD.

Q2382 Chair: What do you not know in this case that you might need to know in order to say, "Would you mind moving on?"

Simon Thompson: It is a very simple thing. We need to know that a regulator has imposed sanctions on him. As far as I am aware, he is regulated by at least two bodies, neither of which has imposed sanctions.

Q2383 Chair: So as far as you are concerned, unless a regulator has been given a red card, anyone can be a member of your institute?

Simon Thompson: Not any longer. The criteria for joining have been tightened up very considerably since I joined the institute five years ago.

Q2384 Chair: Have you met and discussed whether you can remove those whom most people would consider unsuitable? Have you discussed the Goodwin case?

Simon Thompson: We have discussed the case at council and we have agreed that all members, however unpopular, should be subject to the same criteria for membership. We are not a statutory regulator; we have no investigatory powers of our own.

Q2385 Chair: But you have your own constitution. You can vary the constitution and make rules that would enable you to remove Fred Goodwin.

Simon Thompson: Our rules say that when a regulator imposes censure or sanctions on an individual, we will remove them. I would stress that he has been investigated by the FSA. He is on the FSA register and he is on the register of an accounting body, and neither body has seen fit to sanction him.

Q2386 Chair: You could give yourself a general power to act on unsuitability. You could do it next week.

Simon Thompson: I am not sure. Without being a statutory regulator with the quasi-judicial processes that the FSA, the accounting bodies or the General Medical Council have, we do not have those powers; it is within the power of Parliament or regulators to give those powers to professional bodies.

Q2387 Chair: I am not asking you to strike him off. It is the job of others to decide whether he is on the approved persons regime for the purposes of doing a job in banking. I am asking you, given that you are a banking institute, whether you think that you should have taken action to deal with Fred Goodwin and similar cases.

Simon Thompson: I wish we had the powers to be able to investigate the matter properly.

Q2388 Chair: You run your own constitution.

Simon Thompson: But we do not have any powers to investigate and compel evidence. That requires some sort of statutory underpinning.

Q2389 Chair: But you run your own rules. In a sense, it is like a club. Why have you not exercised those rules?

Simon Thompson: I think professional bodies in banking need to be much more than a club, and we need either to be able to rely on the work of independent regulators to look at this or to have some form of independent powers to compel evidence. Any individual, however unpopular, surely has the right to a fair hearing, conducted in accordance with general quasi-judicial principles, and we are not in a position to do that at the moment.

Q2390 Chair: You are a private body-correct?

Simon Thompson: We are a private body-an educational charity, in fact.

Q2391 Chair: A private body can make its own rules, so you can meet tomorrow to make a rule to give the board or a group the right to say, "We’d really rather not have you as a member." The MCC can manage that; why can’t the banking institute?

Simon Thompson: We have rules which say that when an individual is found by a regulator-

Q2392 Chair: You’ve told us what the rules are. I’m asking you why you haven’t changed them already to enable you to take action.

Simon Thompson: Because we feel that the rules we have at the moment, which state that-well, I won’t repeat them, because you are aware of them. We feel that those rules are appropriate for a professional body that does not have investigatory and disciplinary powers of its own. We-

Q2393 Chair: Okay, so you think that the current rules you’ve got, which enable Fred Goodwin to remain a member, are satisfactory.

Simon Thompson: I think the current rules that we have need to be enhanced by a much greater independent regulator that looks at these cases, can take action against individuals and strike people off-

Q2394 Chair: But they are satisfactory, aren’t they? In your view, they are satisfactory.

Simon Thompson: I think our rules have put us in an uncomfortable situation.

Q2395 Chair: So they are not satisfactory.

Simon Thompson: I think without some form of statutory underpinning or much greater co-operation with a regulator, we are not able to take the action against individuals that we might wish to.

Q2396 Chair: It’s extraordinary. Every other private institution out there doesn’t sit around waiting to find out whether Parliament is going to legislate to help it to decide who is suitable to be a member.

Simon Thompson: I’m not sure I entirely agree with that, if I may-

Chair: It’s what you are suggesting.

Simon Thompson: After all, he is a qualified chartered accountant and a member of an accounting body with much greater investigatory and disciplinary powers than our own and he remains on the register.

Q2397 Chair: So he is a suitable person to be a member of the chartered institute, in your view. Is that what you’re saying? Is he suitable to be a member of the chartered institute?

Simon Thompson: My view is that-

Q2398 Chair: Try to answer the question, because the question is fairly straightforward. It is either a yes or a no, really, that one.

Simon Thompson: It is straightforward. I would like us to have the powers to take action against any individual, including Mr Goodwin, who would have breached our code of conduct.

Q2399 Chair: Given what we have just heard for the last five or six minutes, why do you think that the chartered institute can make much of a contribution in the field of improving banking standards?

Simon Thompson: I think we have tried to bring to the attention of the industry, regulators and policy makers the importance of this issue of culture and standards for many years, predating my appointment-I have been with the institute for five years. My predecessors tried to encourage banks and bankers to support professional qualifications and membership of professional bodies. I have written to the Treasury Committee, the Vickers commission and various other bodies. I have tried in the past five years to say, "Look, in order to rebuild the banking industry, it’s fine to look at rebuilding regulatory structures and the structure of the industry, but the whole issue of culture and standards is one that is equally important." I have been trying to bring attention to this for the past five years and to argue for a re-professionalisation of banking. I think that is what gives us the credibility to talk about these issues, and the fact that we have actually done something about it by establishing the Chartered Banker Professional Standards Board, because nobody was, frankly, looking at this issue until very recently.

Chair: Pat McFadden has a quick question and then I’ll bring in Andrew Turnbull.

Q2400 Mr McFadden: Thank you, Chairman. I just wanted to clarify a bit about the organisation. Our briefing tells us the Chartered Banker Institute is the trading name of the Chartered Institute of Bankers in Scotland. Is that correct?

Simon Thompson: Yes.

Q2401 Mr McFadden: So is it a Scottish organisation or a UK organisation? I am not clear on that.

Simon Thompson: We were historically a Scottish organisation. Over the past 10 years, we have become a UK-wide organisation, and we have members and students overseas as well.

Q2402 Mr McFadden: So you started life as an organisation promoting effective standards in Scottish banking.

Simon Thompson: Yes.

Q2403 Mr McFadden: Given that two of the most spectacular banking collapses in the world occurred with Scottish banks, what does that say about the effectiveness of what you have been doing there?

Simon Thompson: It says that professional standards in banking-not just in Scotland but throughout the UK and in many countries-are not high enough. I think the institute was very successful throughout most of its history in ensuring that retail and commercial bankers-it is an institute for retail and commercial bankers-met professional standards. Most people seem to agree that there was a professional culture in banking, probably until the late 1980s, and our institute and the equivalent body south of the border played a major role in that. I think it is very regrettable that over the past two decades, there has not been support from banks and regulators for the idea that bankers should be professionally qualified members of professional bodies meeting professional standards.

Q2404 Mr McFadden: You said you were an organisation for retail and commercial bankers. Does that mean you do not have any investment bankers in your membership?

Simon Thompson: There would be a very small number. We do qualification programmes for retail and commercial bankers. One or two might move into that space later in their career. I do not have the exact figures, but it is a tiny number.

Q2405 Mr McFadden: What has happened to your membership in the past 10 or 20 years?

Simon Thompson: Our membership has actually been constant, and has increased, particularly in recent years. We have remained constant at about 9,000 and 12,000 members over that time. At the time when we submitted evidence to the Commission, we were at about 10,500 members; we are at about 11,500 now.

Q2406 Mr McFadden: I do not know if this is right, but I am told that in the 1980s, there were 150,000 members of the Chartered Institute of Bankers. Does that ring any bells?

Simon Thompson: With the Chair’s permission, that would be for-

Gavin Shreeve: England and Wales.

Q2407 Mr McFadden: So your membership is just Scottish?

Simon Thompson: It was. That is the difference here. Until approximately the late 1990s, we were entirely focused on Scotland, so our membership figures were for Scotland. There was a Chartered Institute of Bankers for England and Wales, which was the forerunner of the ifs. They would have had the larger membership.

Chair: Andy Love has a quick question, and then Andrew Turnbull.

Q2408 Mr Love: The blurb for the chartered institute says it promotes professional standards and offers membership to qualified individuals. Given that by your own admission, Fred Goodwin breached your code of conduct but you cannot do anything according to the rules, are you mis-selling the status of your institute?

Simon Thompson: I take a different view. I am not sure-

Q2409 Mr Love: You say quite clearly that it promotes professional standards. Can you claim, given the evidence that we have just heard about Fred Goodwin, that you are promoting professional standards?

Simon Thompson: You suggested that I felt he had breached the code of professional conduct. My problem is that I do not know that, because the regulatory bodies have not acted. I would like to be able to know that. Then we would be able to take action. That is the issue. In terms of professional standards, one of the issues that this Commission and the wider world sees is a lack of professional standards in banking, with which I wholeheartedly agree.

That is why, beginning in 2008 and publicly in 2011, we launched the Chartered Banker Professional Standards Board to try, for the first time, to define an industry-wide code of conduct and professional standards for bankers, so we could identify what we mean by "professional standards". We all talk about it, but until we actually have a professional standard, I am not sure we have quite defined our terms.

Q2410 Mr Love: But the reality is that with all the activity you are undertaking, you have clearly failed to improve professional standards, because you have within your membership Fred Goodwin. I suspect he is not the only one. As has already been mentioned, two of the major Scottish banks were implicated in the events of 2007-08. Many people left their employment; many of them would still be your members. How can you claim to be contributing to professional standards?

Simon Thompson: We are not the regulator for banking; the regulator is the FSA, soon to be the FCA. Where the FSA has taken action against individuals implicated in the collapse of the banks you mentioned, and where those individuals have been members of ours, they are no longer members. We can provide you with details of that if you wish. The issues to which I draw your attention are the facts that, actually, most bankers are not members of professional bodies, so a lot of the high-profile bankers have not been members of ours, the ifs or any of the other professional bodies in banking-there are others such as the Chartered Institute for Securities and Investment, for instance-and while professional qualifications and professional body membership remain on a non-statutory basis, unfortunately many bankers will not choose to be members.

Q2411 Lord Turnbull: I assume you both agree that in a situation in which the number of people working in the banking sector has increased over the past 25 years-actually, it has probably now declined-to something like, at its peak, 450,000, for membership of a professional body to decline is a pretty shameful thing to have happened.

Simon Thompson: Shall I let Gavin answer? I have been doing a lot of talking so far.

Gavin Shreeve: We cannot coerce anyone to become a member. If you look at the development of the industry over the past 20 years, traditionally someone who joined a bank, if they wanted a career in the banking sector-I stress that I am talking about commercial retail business, not investment banking-was generally recruited straight from school; it is now mainly graduate, particularly into middle management and upwards. They would join the relevant professional body and do their exams to become qualified bankers. Generally, they were offered a career for life. That has changed dramatically in the past 20 years. Recruitment, as I have said, is mainly graduate. There is no requirement at all to do any specific qualification, except where there is a particular department that has some corporate memory and champions qualifications, but those qualifications are now very different. The industry has become very specialised. The kind of one-size-fits-all generalist qualification no longer applies.

Q2412 Lord Turnbull: Isn’t what you are telling me that the industry has changed? I am not blaming your institution on its own, but there is a combination of you and bank management that has not adapted to this.

Gavin Shreeve: Quite the contrary. We have adapted. Not only have we adapted with different qualifications at different levels dealing with different specialities, but our organisation raised the standard by getting degree-awarding powers.

Q2413 Lord Turnbull: Your organisation has adapted by withdrawing from trying to be a chartered institute in England and Wales and leaving the territory free to them. You effectively became a training organisation.

Gavin Shreeve: No, we are not a training organisation, as you call it. We do not do training; we do education to qualifications level. There is a distinction. What happened in the past decade, as banks thought that they were supermarkets and became retail-oriented, is that they walked away from professional qualifications and adopted what they call just-in-time training. They were trained to be salespeople and totally moved away from the sorts of things that we were doing. If you go into any of those major organisations, there are 10, 15, 20 different professions in there. There is an idea that they used to grow, that 20 years ago you walked into an accounts department or HR department in a bank and you would find people who had grown within the industry. Now, if you want a specialist, you go and hire a specialist accountant.

Q2414 Lord Turnbull: I am not convinced by that argument. We are simply talking about retail and commercial; we are not talking about investment banking or whizzy derivative finance. You are telling us that, within that scope, there is such diversity that it is impossible to have any kind of common professional standards. You say, "We are not like doctors", but if you look at the range of doctors-they could be psychiatrists, surgeons, GPs or a whole range of things-they do not say, "We cannot produce a common set of standards of behaviour for a range of specialisms within a common profession."

Gavin Shreeve: Can we define our terms? At one minute, we are talking about qualifications, which are there to give people the ability to do a job given the context, understanding and knowledge of practice, but on the other hand you mix standards with that. They are totally different issues.

Q2415 Lord Turnbull: I made a distinction in the very first meeting we had, when Sir David Walker came here. I asked whether there was a distinction between giving people the skills they need to do the particular functions, which I call professionalisation-you can use different vocabulary, if you want-and inculcating certain common values, which I call professionalism. The question is that neither of these things, judging either by the membership of the CBI or the number of people taking up law courses, is thriving at the moment.

Simon Thompson: Lord Turnbull, may I deal with aspects of that, with the Chair’s permission? There is a distinction between standards and qualifications. I came to banking five years ago, having worked in the accountancy profession, and I was surprised by the fact that there were no agreed professional standards for bankers. This has been one of the issues. We talk about professional standards, but we need to know what they are, which is one of the reasons why I have been very much involved in setting up this thing called the Chartered Banker Professional Standards Board, which has for the first time agreed a common code of professional conduct for the industry. It covers about 75% of employees broadly defined as in banking now, and it has defined the first professional standard for banking. That professional standard has elements of knowledge and skill that you can achieve with a qualification, but it is the behavioural element too, and that is the key.

Q2416 Lord Turnbull: This is where we come to the difference. The CBI believes in this concept of some common values, but the ifs-from what you said-is pretty sceptical about trying to inculcate and common values.

Gavin Shreeve: No, I did not say that at all, do not put words in my mouth. What I am talking about is high-level qualifications that give people skills and the wherewithal to do their job to the highest of their ability, in order to make them proper professionals who understand what they are doing to the highest level and in particular for the benefit of the consumer and the customer. That is what our qualifications are there for.

Q2417 Lord Turnbull: Do you not say somewhere in your submission, "I am pretty sceptical about codes"?

Gavin Shreeve: I am sceptical about codes, yes, but that has got nothing to do with qualifications.

Q2418 Lord Turnbull: Well, that is the difference, because I do not think that Mr Thompson is sceptical about codes-he is actually trying to develop one. That is why I found your evidence pretty defeatist really: we will train people in certain key skills, but there is not really much we can do about codes of behaviour.

Gavin Shreeve: Codes of behaviour are cultural within an organisation. You can have all the codes in the world, but people will still break them. All the banks, all the professional bodies, were awash with codes, but that does not stop bad behaviour. The fact is, if the culture of an organisation is not driven from the top-I am not just talking about the senior executives here, I am talking about boards, shareholders and the whole culture of expectation around behaviour-as to what is permissible or not, then all the codes in the world will not make a jot of difference to that.

Q2419 Lord Turnbull: Your organisation is trying to address this. Obviously, you as organisations cannot get other people to sign up to codes, but you can be part of a process that does-of building alliances. I do not see in the ifs, however, any attempt to do that.

Simon Thompson: Lord Turnbull, may I address that point? If you look at many professions, you have what is called the three-pillar approach to professional standards, where you have ethics, professional qualifications and a sanctions regime. I think that both our organisations have tried to adapt to and to promote a culture of a profession in different ways. Without wishing to speak for Mr Shreeve, the ifs has focused on the qualifications piece. We have focused on the ethics piece, and the qualifications piece to an extent-we have tried to do that through the Chartered Banker Professional Standards Board-and on the sanctions and regulatory piece, we have an independent regulator in banking already.

It is a different structure from other professions, but we are trying to address it in different ways, which I think is probably right and proper. There are many professional bodies involved in banking, not just the two that are here, and we all try to support professionalism in our own particular ways.

Q2420 Lord Turnbull: In Mr Shreeve’s case, saying, "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", is a pretty defeatist view.

Gavin Shreeve: Why would publishing another code make any difference? What we are trying to do with qualifications is to imbue professionalism within the organisation. If you give people the wherewithal-I am not talking about just-in-time training-to respond intelligently and honestly with the consumer or the customer, that is going to build trust and confidence in the consumer, rather than simply signing yet another code.

Q2421 Lord Turnbull: I think the evidence shows that the people who devised the highly complicated exclusions in mis-selling were actually technically very competent people. That was part of the problem: much of the malfeasance in investment banking was by people who were supremely competent. What they lacked was a sense of honour and commitment to their customers. Simply working on professionalisation is certainly not going to suffice. You could get people who have lots of skills, but are they going to apply those skills constructively?

Gavin Shreeve: And I bet you every one of those people signed the code.

Q2422 Lord Turnbull: I am not even sure of that, actually.

Simon Thompson: One piece of evidence that might be helpful to the Commission is that when we conducted some research into this, we asked customers what they wanted, and the Professional Standards Board research shows that one in two UK adults wants to see bankers covered by a common code. The key is a common code that is supported by detailed professional standards. The common code has some high-level behaviours and nice principles that we can all agree with; if you just have a code by itself, it does not help and does not move things forward.

What a well-designed professional standard or standards regime does is describe in detail how you develop the knowledge, skills, attitudes and behaviours to embed the code as an individual, if you are working with a customer, or, if you are in a more senior position in a bank, how you would take responsibility for implementing that code throughout your organisation.

Q2423 Lord Turnbull: I am in favour of that. The question that really needs addressing is: how do you make it happen? You talk about "Ensuring greater numbers of bankers in senior…roles meet agreed professional standards", which does not answer the question of how you do it when you get on to how you make this happen, and then "Encouraging senior executives…to hold relevant…qualifications". What is the mechanism by which good intentions can actually be made to bite, so that an industry that is supposed to be one of our great strengths-along with our pharmaceuticals, aerospace and whatever-is actually peopled by people who have not only the technical expertise, but the sense of moral purpose that is going to make them deliver for their customers?

Gavin Shreeve: We can only encourage, and we do encourage at all levels. We are constantly encouraging people to take professional qualifications, and even once they have finished a qualification, to continue with the education process through CPD and so on. We can only encourage, and we can only cajole; we cannot enforce anything.

Q2424 Lord Turnbull: You say, "The Commission must avoid falling into the trap of wanting to be seen to be doing something"-well, that is why we have been set up-"and so coming up with yet another list of do’s and don’ts that will be treated with inevitable and understandable scepticism." What do you think we should be recommending should happen-because simply leaving it to your two bodies, with a tiny coverage relative to the size of the sector, is not going to be enough.

Gavin Shreeve: Certainly in terms of encouraging appropriate behaviour it is the people that the industry employs. I think that there could be a lot more encouragement around monitoring those who are employed in the industry, but of course this is a regulatory issue. There is scope for the approved persons list to be widened, deepened, given more teeth; and I think that that is an appropriate way to go forward on that; and that is within the regulatory environment, so that they can enforce it.

Q2425 Lord Turnbull: Basically, you think we should start with the regulator who has got to lead this process, rather than representative bodies like yourselves-membership bodies.

Gavin Shreeve: Yes, I think so.

Q2426 Lord Turnbull: We have noticed that in an extraordinary way only one person in this whole sector has been sanctioned and fined and he must almost certainly have been a member of yours.

Simon Thompson: Yes, and we instituted disciplinary action when the-

Q2427 Lord Turnbull: So he has been struck off.

Simon Thompson: On being notified that a disciplinary had been established he resigned, and we have no jurisdiction over members who resign, unfortunately; but he would not be reinstated if he reapplied, which is unlikely to happen, clearly.

With your permission, Chair, you asked my colleague what we would like to see the Commission recommend in order to try and build up a culture of professionalism. May I address that? We would certainly like to see, speaking on behalf of the Chartered Banker Professional Standards Board, the Commission look to see ways in which the code of conduct, which covers about 75% of UK bank employees, could be extended to everybody, to give the professional standards board greater independence and greater teeth.

We would like to see a single register for bankers. I think one of the issues is individuals being members of one of many professional bodies. I think a single registration body that holds a single register that customers could check and make a complaint against would be very helpful. Clearly we would want to see proper mechanisms for bankers to be struck off that register if they misbehave. How that is done-I think there are two models. You could either look to have an extended FSA register or you could have a new independent register of banking professionals.

I think there are advantages and disadvantages to both models, but I would like to see, as well, the regulators insist that senior bankers and bankers in key roles are professionally qualified, perhaps through an extension of the FSA accredited body regime, which currently covers financial advisers only but I think could be expanded to cover many more; and then I think much greater encouragement for a much wider population to be professionally qualified, meet professional standards and CPD.

Gavin Shreeve: The Approved Persons regime has got approximately 150,000 people on it, of which 30,000 to 40,000 are financial advisers. There is a whole wide range of other people on it already that could be extended, and it has the regulatory teeth to be able to strike people off. If you don’t give any of these organisations regulatory teeth you run into all sorts of problems. For example, when we went through the RDR process and there was this whole issue of trying to force people to become a member of a professional body, the FSA was advised that they should take care-that this would probably contravene the Human Rights Act, and they did not enforce it. So as my colleague says there are various issues involved here, but whatever you bring in it has to have regulatory teeth; otherwise it is simply not going to be effective.

Q2428 Chair: Mr Thompson, I have an extract from your code of conduct in front of me, and it says that members have a duty to "Uphold the name…of…the banking profession". That is what it actually says. Do you think Fred Goodwin has upheld the name of the banking profession?

Simon Thompson: I don’t know is the answer. That is why I would like to have the powers to investigate him and find out.

Q2429 Chair: Don’t you think you are just about the only man left in the country who does not know?

Simon Thompson: I think there are many men and women in the country-

Q2430 Chair: He might have been maligned?

Simon Thompson: Who have been horrified by what has happened in banking more broadly over the past few years. If we are to take action against an individual, it has to be done, surely, on the basis that that individual has a fair hearing, however unpopular they may be.

Q2431 Chair: You can set up your own hearing on the basis of your own code of conduct, just like any private body. That is going on as we speak-all the time, all over the country-in private institutions.

Simon Thompson: The issue here is one of evidence.

Q2432 Chair: You can ask for the evidence. What power do you not have to run yourselves that you feel you need?

Simon Thompson: We do not have the power to compel an individual, an organisation or another body to provide evidence that an individual has acted badly.

Q2433 Chair: Have you asked Fred Goodwin? You are saying, "We haven’t got any powers to compel," but have you tried a letter, for example, or even a phone call?

Simon Thompson: We have not asked him to supply evidence, because a disciplinary committee has not been established to look into that. We are waiting for regulators, who have the power to do these things, to take action. That is not a satisfactory situation, and it illustrates why current professional bodies in banking cannot take action against these individuals, although we have regulators who could and should.

Q2434 Chair: Do you appreciate that what we are watching this afternoon gives us powerful evidence to suggest that your body is not the one best suited to play a role in restoring standards?

Simon Thompson: Not surprisingly, I take a different view. We have a high-profile individual who is extraordinarily unpopular, and we are being pressured into taking action against them.

Q2435 Chair: I am using him only as an example. As several colleagues have pointed out, there are many others around.

Simon Thompson: In one or two cases where high-profile individuals have been members of the institute, disciplinary action has been instituted, and those individuals are no longer members of the professional body-where a regulator has taken action. [Interruption.] If I may finish the point, Mr Chairman, we are in an uncomfortable situation, but there are bodies with more powers than ours, who have regulatory powers, who have investigated and who have not taken action. We are in an impossible position, where, without having the powers, we are being asked to take action against an individual, when others have not acted. You might wish to ask them why other censures and sanctions have not been forthcoming.

Q2436 Chair: Just at the moment, we are asking you. I am sure you understand.

Simon Thompson: I know. I am well aware of that.

Q2437 Mark Garnier: Sorry to bleat on about this, Mr Thompson, but would you not agree that the tone from the top is vital if we are to improve standards?

Simon Thompson: The role of senior management and the tone from the top in creating the right culture are absolutely key. There is also a wider point: the tone at the top is the key driver in making sure that organisations take professional standards seriously and that there are not policies and procedures that prevent individuals from doing that. There is also something about the tone at the middle and the tone at the bottom. You need to have individuals surrounded by a culture of professionalism.

Q2438 Mark Garnier: Given the last half an hour’s conversation, in which we have talked about the tone the Chartered Banker Institute is setting regarding Fred Goodwin, do you think you are setting the right tone from the top, or are you merely saying that you want to wriggle like eel to avoid any responsibility in terms of people who have brought banking into disrepute?

Simon Thompson: I think we are setting the appropriate tone from the top by-

Q2439 Mark Garnier: By not throwing Fred Goodwin out of the organisation.

Simon Thompson: I think we are succeeding in setting the right tone from the top by getting nine banks to agree to a common code of professional conduct for the first time, so that professional standards-

Q2440 Mark Garnier: But it does not matter, because they will not be thrown out if they get it wrong, will they?

Simon Thompson: Well, I come back to the point-my colleagues made this point-that we are not regulators.

Q2441 Mark Garnier: You do not have to be regulators. I am sorry, but you have gone on about this a great deal, and this is where we are getting frustrated. If you are a member of a golf club, any other sort of club, a political party or anything else, there is always something in the rules that says that a member must uphold the good name of whatever organisation they are a member of-this is merely an internal thing. If you genuinely think that Fred Goodwin has upheld the good name of the Chartered Banker Institute in the actions that he has taken, that sends an extraordinary message. Surely, your organisation could just hoof him out because he has brought the banking industry-and your organisation as a result, I might add-into disrepute.

Simon Thompson: There are many organisations of which he has fellowships, memberships and so on, and is a qualified member of, and I think we are all in the same position. We believe-I cannot speak for anyone else, but I suspect most organisations would say-that any individual, however unpopular, deserves a fair hearing. Unfortunately in banking, as non-regulatory and non-statutory bodies we do not have the quasi-judicial mechanisms we need in this day and age to conduct a fair hearing.

Q2442 Mark Garnier: You have a constitution, like any other organisation. If somebody breaches your constitution, surely you can just turn round and at least telephone to say, "Given the acres and acres of bad press about you for the last seven years, would you mind coming in and having a conversation about the fact that you’ve blown up the entire banking system of this country?" Surely that is not a bad conversation to have, is it?

Simon Thompson: I’m not sure that is the way we want professional regulators to work in this country, that they just look at the newspapers, see someone is unpopular and then decide to do something.

Q2443 Chair: We are not asking you to act like a professional regulator; we are asking you to act like a private club. His golf club has got rid of him. His golf club has managed it and you have not.

Simon Thompson: I don’t follow golfing news, I’m afraid, but I have been following news from other professional bodies with greater powers that have not taken any action either.

Q2444 Chair: He is a former president of your outfit, isn’t he?

Simon Thompson: Yes, he was made president in 1997, when he was at Clydesdale bank.

Q2445 Mark Garnier: Mr Shreeve, you say in your written submission that the actions of a few should not be seen as indicative of the behaviour of many; that is in reference to PPI, LIBOR and various other mis-sellings. Why do you think that the actions of a few should not be seen as indicative of the behaviour of many?

Gavin Shreeve: There are nearly half a million people working in the industry. Most of them belong to a wide range of different professional bodies; most of them conduct themselves in an open and honest way; and there is no reason why they should be tainted by the few. It is in the same way that everybody tars the entire industry-I am talking about the commercial banking again-and there is an assumption that everybody is earning monster salaries with megabuck bonuses. That is simply not true, but the tabloid headlines distort the fact that most people who work in the sector earn fairly modest salaries. Yes, the remuneration culture right at the top end is totally unacceptable-I completely agree with that view-but don’t tar the whole industry with that brush.

Q2446 Mark Garnier: Have you got evidence that backs up your statement that the actions of the few should not be seen as indicative of the behaviour of the many?

Gavin Shreeve: We deal with the industry on a daily basis-

Q2447 Mark Garnier: So it is anecdotal evidence, as opposed to hard evidence?

Gavin Shreeve: What sort of hard evidence do you want? I am talking about everybody we deal with on a daily basis, people who work right across the industry in a wide range of functions, and many of them have a problem with their own managements as well, and they write letters and say, "We’ve just become highly qualified salesmen as the industry became retail-oriented"; I am talking about "retailers"-supermarket-oriented. There is a vast number of people who work in the industry and who do not get megabucks.

Q2448 Mark Garnier: Sure, I appreciate that, and actually it is the remuneration that I really want to get to the bottom of, because I absolutely agree with you that there are half a million people working in the banking industry and the vast majority of them are relatively lowly paid tellers. Also, a great many of those people are working in the support functions: the clearing systems, HR and all that kind of other stuff-of second and third lines of defence. It is that type of stuff.

However, when you focus more closely on those people on the front line-the people actually generating business-that is the key area, because of course, a lot of those people are not very well paid but they are incentivised to generate more business, aren’t they? Isn’t that the key thing we need to drill down on: the incentives together with the ethical standards-not of the whole of the banking industry but of that area where they are customer-focused?

Gavin Shreeve: Absolutely, and over the past 10 to 12 years, you have seen a situation where one organisation-I will quote it but I won’t name it-decided that they were going to give up on professional qualifications and that they would adopt just-in-time training. They followed a west coast of America model whereby training was set up and you were given certain targets. You were trained to get those targets and you got a bit more training to get more targets. The sales culture was built right through the organisation. That was because, right from the top, there was an incentive culture whereby you were meeting shareholder expectations. We moved away from commercial banks being utilities to their being like any other plc in society. I would argue that the utility, which is at the core of our economy, should not be seen in those terms. But it comes from the top; it is driven from the top so that the people in the front line are being forced to make those sales.

Q2449 Mark Garnier: I want to address that tone from the top in a minute. Before that, you say that the concept of a one-size-fits-all professional qualification for bankers is outmoded, unrealistic and probably inappropriate, and then go on to qualify that. Through all your qualification programmes, do you have a commonality of culture and standards? Specifically, do you teach people who are working in the banking sector-albeit there are different parts within it-what a bank actually is and what the overall requirements are in terms of standards and culture?

Gavin Shreeve: We are the only professional body in the country with degree-awarding powers, so our qualifications are structured in such a way-in common with many universities-whereby in level 4, your first year, there is a commonality before you go off and specialise. That level 4, first-year university standard, which most people do regardless of whether or not they go on to do the degree, is essentially about giving people the basics about what a bank is, the fundamentals of risk management, and the whole concept of lending. Imbued in all of that is also behaviour management-what is acceptable behaviour-and the management structures. There is a core that everybody does regardless of whether or not they specialise.

Q2450 Mark Garnier: Would it be possible to have a look at a course book for that?

Gavin Shreeve: Yes, absolutely. I can let you have that.

Q2451 Mark Garnier: Fantastic. My final question is about this tone from the top. I don’t know whether you saw the evidence session last week with the UBS bankers, who were in charge of UBS at the time of the LIBOR scandal. One of the interesting things about that, which was picked up at the time, was that the FSA at no point interviewed those senior people in charge of the organisation. Indeed, those senior managing directors and chief executives of the investment banking side knew nothing about the LIBOR scandal that they were in charge of at the time, until such time as they read about it in the newspapers, earlier this year. Do you find that surprising?

Gavin Shreeve: I suppose it should surprise me, but it probably does not.

Q2452 Mark Garnier: You sound world weary about it. If I might develop this point, is it not fundamentally wrong that at no point had somebody gone along to these senior managers and actually interviewed them as part of the investigation process, or indeed had a serious conversation with them about continuing-one of them has now gone on to be a senior guy at another organisation? Surely, if we expect people to deliver tone from the top, we must expect accountability from the top as well, and there seems to be some shirking of accountability.

Gavin Shreeve: It would appear so, yes.

Chair: If you have any further points that you would like to make to us, we would be extremely grateful if you put them in writing. I recognise that there will be one or two-I can sense that from the hint of frustration in some of the replies. We are very pressed for time today. I am going to call this session to a close and we will resume in three minutes’ time. Thank you very much for giving evidence.

<?oasys [pg6,cwe1] ?>Examination of Witness

Witness: Anthony Browne, Chief Executive, British Bankers’ Association, examined.

Q2453 Chair: Thank you very much for coming to give evidence this afternoon. The BBA wants to be at the forefront, quite understandably, of restoring trust and confidence in the banking sector, but at the same time, quite understandably too, an important function of the BBA is lobbying. Do you think that those two functions are compatible?

Anthony Browne: I do.

Thank you for giving me this chance to appear in front of you. I should just say beforehand that, if I sound slightly strange, I am recovering from a bout of flu and I have several frogs in my throat, so I will drink water throughout this.

Chair: You are sounding clear enough at the moment.

Anthony Browne: Yes. It was just in case I start going very quiet and tail off.

I do. Clearly, our job as a trade association is to represent the banks. We have 200 banks that are members, including all the main retail banks. We sent through a list earlier today; I do not know if it got to you. We represent the banks with the Government, the regulators, Parliament. We are the single voice of bankers, as it were: when banks want a voice, who do you phone?

A lot of it is very detailed regulatory work, but there are other aspects that are of common interest to banks. As you said, raising trust and confidence is the main issue for the banking sector at the moment. After a whole series of scandals and the financial crisis, it has lost the trust of the public, of many of its customers and obviously of the political class, and restoring that trust is at the forefront. As the main representative of the banks, we have to try and do what we can to restore that trust. Indeed, we actually have a draft strategy at the BBA, where trying to restore trust and confidence is our No. 1 ambition.

Q2454 Chair: But trust has been lost for a reason, hasn’t it? It is because the public got hit very badly by mistakes the banks made. Those mistakes were often made possible only because the banks had been lobbying so successfully.

Anthony Browne: You are absolutely right-

Q2455 Chair: Take Basel, for example.

Anthony Browne: You are absolutely right that mistakes were made by the banks. You have had many banking members in front of you admitting mistakes. The industry was-you had an answer saying that the business model imploded. They had excessive risks. One of the chairmen-one of my members-said pay was grotesque.

Q2456 Chair: But there is a conflict of interest, is there not, between what is best for the country and what is best for the banks? That will always be the case in anybody that has an implicit guarantee.

Anthony Browne: I don’t think that is right actually, because I think the banks realised that ultimately what is good for the country and good for the economy is good for them. Having a financial implosion is not good for the banks. What happened was disastrous not only for Britain, for your voters and for the customers of banks, but for the banks as well. They do not want a repeat and they are determined to make sure that never again do they have to rely on the taxpayer. They did not actually want to rely on the taxpayer, but they ended up in a situation where there was no option. They have actively supported, as we have, increases in capital ratios, for example-you mentioned Basel-under Basel III. We have supported ring-fencing and a whole range of other measures that are aimed at making banks more stable and less dependent on the taxpayer in future.

Q2457 Chair: You have come round to ring-fencing, I think it is fair to say, is it not, as an institution? You have come round to it after quite a spell when you were not so keen. I haven’t got the quotations in front of me but I think you will find that to be the case.

Anthony Browne: I have only been in the job for four months. There is certainly an absolute realisation in the banking sector, among my members-you have obviously had a lot of my senior members in front of you, and more might come in future-that they do not want a repeat of what happened at all. They have to do whatever it takes to make sure that it does not get repeated.

Q2458 Chair: In the Evening Standard on the day that the Committee published its proposals for electrification of the ring fence, you were reported as saying "the threat of banks being broken up was causing uncertainty, and making it harder for them to raise money which could then be loaned to small firms." Do you have any evidence to support the assertion that the electrification proposal could or will lead to a reduction in finance to small firms?

Anthony Browne: The point I was making was a broader one about regulatory uncertainty-that one of the biggest issues for my members is regulatory uncertainty, and the difficulty that causes investors in banks. Don’t necessarily listen to us, but listen to the Association of British Insurers, which represents investors in banks and obviously does not represent the banks at all: not knowing the future regulatory regime of banks makes it very difficult to invest in them. That is obviously money-the capital-that they use to build up their core tier 1 equity, which they then use to lend out to businesses. The more regulatory uncertainty there is, the more difficult it is for them to raise capital.

Q2459 Chair: Is it not at least as plausible to argue that greater certainty will come with knowledge that the banks are not going to try and game the ring fence? That will come with electrification.

Anthony Browne: The point I made-I do not quite know what bits of quotes you saw. We broadly welcome the report and issued a press release welcoming it. It was clearly a very well-considered and well-thought-out report. We support most of the stuff that you said in there actually, and we said that in the press release we issued, which we can circulate to you if you want to see it. Obviously people pick up on the bits that do not quite agree with it.

Q2460 Chair: I am homing in on a key concern that you expressed to try and discover whether it has any evidential base.

Anthony Browne: The point I am making about ring-fencing-this is a general principle about rule-making in general-is that the first port of call if you are worried about the rules being broken is to make sure that they are properly enforced. So the suggestions you made-for example, about the duties and responsibilities to uphold the ring fence-we supported. We just need to make sure there are sufficient powers to enforce the rules that you want rather than saying, "Well if we do not get the rules we want, we will change the rules."

Q2461 Mr McFadden: In a blog that you wrote on 21 December, you said, "Many governments around the world-from the UK to the US to France-have considered forcing their banks to break up. They have all come to the same conclusion: it doesn’t make sense." Have you heard of the Volcker rule, Mr Browne?

Anthony Browne: I have. I think there was some confusion about that blog. I understand from your secretariat that you thought I wrote that after your report was published. It was actually written before you wrote your report. It was in response to a lot-there was a huge amount of commentary in the week beforehand urging-of discussion on whether banks should be broken up. I do know the Volcker rule, obviously-that is a ban on proprietary trading, rather than actually breaking up universal banks.

Q2462 Mr McFadden: It is an enforced separation though, isn’t it?

Anthony Browne: Of one narrow activity. Proprietary trading-I am very happy to talk about that-is a relatively small activity of banks. It would not mean separating out investment banks and retail banks, which is normally what people mean by separation of banks and Glass-Steagall. Proprietary trading is one small activity of investment banks, and some of them virtually don’t do it at all. The complication comes from how you define proprietary trading, and this is why Volcker has got into such trouble in the US trying to differentiate between what might we commonly understand as proprietary trading, what is market-making and what is client facilitation. It is actually very difficult to draw that distinction, which is why Volcker has been redrafted and I understand will probably be redrafted again.

Q2463 Mr McFadden: My point is that not everywhere in the world has the idea of asking banks to separate out certain activities been rejected.

Anthony Browne: But that’s not separating wholesale banks from retail banks, which is what is normally meant by separation of banks.

Q2464 Mr McFadden: To turn to your speech in October, you said, "And we need to restore trust in banks. It is my main mission at the BBA." You said that again in your opening and it is stated here. Can you tell us what conversations you have had with Goldman Sachs about their plans to defer bonuses to avoid tax?

Anthony Browne: None; Goldman Sachs are not members.

Q2465 Mr McFadden: They are not members of yours.

Anthony Browne: They are not.

Q2466 Mr McFadden: Do you think an activity like that restores trust or diminishes it?

Anthony Browne: It clearly doesn’t restore trust. I noticed in that report in the FT today that page 5-or something-said that the vast majority of banks had decided not to do this exactly for the reason that it would damage trust in banks.

Q2467 Mr McFadden: Have you had a wider discussion with banks about that kind of activity?

Anthony Browne: I have not, no. I should point out that the income tax is paid by the individuals-the employees-not by the banks, as it happens.

Q2468 Mr McFadden: There has also been a story in the past 24 hours about the potential bonus available-some £4 million-to António Horta-Osório. Do you think bonuses of that level restore trust or diminish it?

Anthony Browne: I cannot talk about an individual member. I represent the cross-section of banks. There is no doubt that in the past bonuses have been too high-there is absolutely no doubt about that-and in particular have rewarded short-term, risky behaviour. There is a broad acceptance across the industry that that is the case. Bonuses have been rewritten and redrawn, partly by voluntary action by the banks, but also by legislative action, particularly from the EU. The majority of bonuses are now paid with shares and the majority of bonuses are now deferred. For higher paid people, the instant cash bonus is now only 20% of what it was. Overall, bonuses in the industry have come down massively since 2007.

Q2469 Mr McFadden: Then why is a leading banker in line for a bonus, whether in cash or shares, of £4 million?

Anthony Browne: I suggest you ask him. I cannot talk about an individual member.

Q2470 Mr McFadden: How are you going to restore trust in banks if you cannot address questions like remuneration?

Anthony Browne: I can address remuneration policy, as I have, and I totally support the fact that people should not be paid large bonuses for taking short-term risks. Their incentives need to be aligned with the long-term success of the company. There needs to be clawback-there is clawback-so that if there is future failure, those bonuses are taken back.

Q2471 Mr McFadden: I want to pick up on the Chairman’s theme about the BBA’s role as a lobbyist. Your predecessor, Angela Knight, gave evidence to a panel of this commission on PPI mis-selling and cross-selling last week. She told us that she was deeply opposed personally to the court action taken by the banks collectively through the BBA to avoid or slow down paying compensation to customers. There is a perception that the BBA will do the banks’ bidding. What is the point of the organisation if it does not agree with what it is being asked to do but it just goes out and is a spokesperson for it anyway? How can it restore trust if that is how it behaves over something like PPI?

Anthony Browne: Obviously, I was not around at the PPI time. To address the general point, our job is to represent the banks, but trade associations can either follow or lead. You can either be a defender of the status quo or an agent for change. I want the BBA to be an agent for change and to try to do what we can as a trade association, with the constraints that that implies, to help the industry get to where it wants to go. My job is made a lot easier by the fact that my members, certainly the chairman and chief executives, are adamant that the industry does need to change. They are urging the BBA to take a proactive role in helping to raise standards, which is what we are here to talk about, and to take other measures to restore trust in the industry. They are not digging in their heels and saying, "We can’t do that. We can’t do that."

That is one of the impacts of LIBOR. I was appointed about one week before the LIBOR scandal erupted, and obviously started some time after it erupted. One of the impacts of the LIBOR scandal is that it has really focused the attention of the industry on the need to restore trust and confidence and there is awareness that that might mean doing things that are uncomfortable and that they would not normally do.

Q2472 Mr McFadden: What do you think LIBOR has done to the credibility of the BBA?

Anthony Browne: It has clearly damaged it. Part of my job is also to try to restore credibility to the BBA.

Q2473 Mr McFadden: And if you say that the banks are urging you to tell them how to change-

Anthony Browne: They are urging me to help the industry change in a way that they recognise that it needs to change.

Q2474 Mr McFadden: How is it going to do that then? How is it going to restore trust?

Anthony Browne: You should judge us by what we say and what we do as well. We have done a whole range of different things. For example, when I started at the BBA, I did not have a chairman. We now have-Obviously Marcus Agius who was the former chairman of Barclays and also the chairman of the BBA resigned from both jobs. One of the first things in my in-tray was to find a chairman. We now have the first independent chairman of the BBA, Sir Nigel Wicks, who is not associated with any of the main banks. As it happens, he was appointed by Tony Blair to be chairman of the Committee on Standards in Public Life. As some of you know, he is a man of great integrity. It is a real sign of the need for change that they agreed to appoint an independent chairman.

Mr McFadden: I am sure, but-

Anthony Browne: We are also in the process of setting up an advisory council to represent the wider public interest as an input to our board. At the moment, the criticism of the BBA is that it is bankers talking to bankers. We need input from the wider country into our work. Our retail committee has agreed to set up a consumer panel, so that we get the voices of the consumers in there. The point of that is to be an alarm bell for consumer issues. This is to try to help tackle the various mis-selling scandals, and so that we can hear loud and clear the concerns of the different consumer groups and then, hopefully, deal with them more effectively. We have a draft strategy, as I mentioned earlier. The three highlights of that are that we want, as the BBA, to represent the banks, to do what we can to help customers, to promote growth, and to raise standards in the industry.

On the promoting growth front, we have done quite a lot on that already in terms of a better business task force, which we run and which helps promote access to finance to SMEs. We run the appeal service for SMEs and for small company borrowers who have their applications for loans turned down. They now have a right of appeal. We run a referral service by the banks. We helped to set that up across the banks, so that if a small business goes to a bank and does not get a loan, they now get a referral to other sources of finance. We did a submission to the autumn statement for the first time, which contained suggestions from my members of what the Chancellor could do to help promote economic growth in the wider economy. The Treasury was rather surprised, in the "delighted" sense, to have this submission, because it was not complaining about the way that banks are being treated but took a constructive approach, by saying that as the lifeblood of the economy-all companies depend on banks one way or another, for running current accounts, or export finance, or investment and so on-those are the measures that would help the economy to grow.

We want to play a positive and proactive role in these different things, and in the submission that we gave to you about banking standards you did not ask us to supply the evidence but we unilaterally set up a taskforce on banking standards. We had lots of detailed discussions and we talked to a lot of different people about the different things that ought to be done to raise standards in the industry. We came up with a lot of different proposals, we submitted them to you and that is part of the constructive role we want to play in this.

Chair: One quick question and then a quick reply.

Q2475 Mr McFadden: You are familiar with the political world, Mr Browne, so you know what a clause IV moment is.

Anthony Browne: Yes.

Q2476 Mr McFadden: How would you define the banks’ clause IV moment?

Anthony Browne: That is a good question. I can’t think of one right now, but it would be very useful to have a clause IV moment. Quite a few people have asked me-this is an example of a non-clause IV moment-should the BBA change its name? And the answer is, "No", because that would be seen as so gimmicky that it would be one day’s cynical headlines and then lots of cynicism afterwards. It is not about our name; it is about what we actually do, how we behave, how we represent the industry and how we represent what we do to help the wider interests in the country, whether it is promoting economic growth, helping customers or-

Q2477 Mr McFadden: So the search for the clause IV moment continues?

Anthony Browne: As a Labour veteran, I look forward to some proposals from you. I am genuinely interested in this. I have been in the job for months. I have told you the sense of a clear direction that I want to go, and I do that with the backing of my members and I do that with-it is where the chairman, Sir Nigel Wicks, wants to go as well. If you have suggestions of things that you think we ought to do and I ask this question of everyone-as I say, I am four months into the job-then I would like to hear them.

Mr McFadden: It is all in our report, I think.

Q2478 Chair: It is helpful that you are accepting that the whole LIBOR scandal has tarnished the reputation of the BBA and its credibility with the wider public when speaking on behalf of the industry. You are accepting that, aren’t you?

Anthony Browne: It’s an obvious fact, yes. The best thing that we can do-I arrived at the BBA at the beginning of September-is to implement the Wheathley review for the restoring of credibility to LIBOR as effectively as possible, and we are in the process of that. I spend a lot of my time dealing with LIBOR, and you haven’t read about the regulatory issues about LIBOR. There are the fines issues and the banks misbehaving, but that is a regulatory enforcement action. In terms of implementation of the Wheatley review, it is going on; you are not reading about it because it’s going quite well-at the moment.

Q2479 Lord McFall of Alcluith: When Angela Knight appeared before us last week, she was asked by my colleague, Pat McFadden, about LIBOR. She said, "The first is that I cannot talk about LIBOR publicly. I have been requested not to do so, other than about something that is in the public domain." Why did she say that, Mr Browne?

Anthony Browne: I was rather surprised by that as well, because I wasn’t aware of having requested that. Anyway, we had to ask her, after she left, not to give media interviews about it-that we, as the BBA, would give media interviews about it. That is because there are so many legal actions going on about LIBOR that we have to control the information that goes to the press.

Q2480 Lord McFall of Alcluith: There is nothing in the legal agreements that you have signed between her and yourselves that prevents her doing that, is there?

Anthony Browne: That prevents her doing what?

Lord McFall of Alcluith: Speaking about LIBOR, because it is an important issue to this Committee and she was there during quite a large part of it, so I think it would be good to get her views on it. I am just asking you if there is any impediment to her giving us those views. And if there isn’t any impediment, could you write to us and tell us that there are no impediments?

Anthony Browne: I can write to you and set out the exact position on that.

Q2481 Lord McFall of Alcluith: Good. Okay. That’s fine.

You mentioned in your speech on 17 October to the International Banking Conference that, "It is…a fascinating time to become the voice of banking." So you are the shop steward for the trade union that is banking, are you?

Anthony Browne: That’s one way of putting it, yes. The reason I did it-a lot of people have asked me why I have done it. I do mention that in the speech that I made about a month after I started this job; it is that we do need banks-

Q2482 Lord McFall of Alcluith: I understand that, and I have only got a short bit of time. We can go on to the next question, and it is this: you say you are the voice of banking. Given that 60%, approximately, of your membership fee comes from the top five payers, despite the fact the BBA has 200 members, you are really the shop steward for the top five banks.

Anthony Browne: No, we’re not. We represent-all the banks are our members, and as I said there are nearly 200 of them. We do a lot of work with small banks and with retail banks.

Q2483 Lord McFall of Alcluith: You see, I am looking for where the centre of gravity is in this organisation, because if you say you are the voice of banking and you are the shop steward, the paymaster then has big influence.

Anthony Browne: Well, 40% is paid by banks that are not the top five. The membership fee-there is a complicated formula, which we supplied to you and is on our website, but it is largely, basically, the bigger the banks the more money they pay.

Q2484 Lord McFall of Alcluith: The reason I am asking for that is that you have established a consumer panel; you told us that in your letter. Now, given that you want a closer focus and empathy with consumers, what if this consumer panel came out with criticism of a number of the practices of the bank? Would that not provide you with a conflict and a dilemma?

Anthony Browne: No; the whole point is to understand what the issues of the consumer groups are.

Q2485 Lord McFall of Alcluith: Okay. I can take you through the judicial review, then, that Angela Knight said she was very uncomfortable with: if you had a similar situation with your consumer groups coming out against what was in the consumer interest, or has been seen to be in the consumer interest, would you make that public-that the consumer group were against it?

Anthony Browne: With my experience of consumer groups, with all due respect to them-I say this in the best possible way-I think it would be very difficult to keep it out of the public eye.

Q2486 Lord McFall of Alcluith: But I am asking that specific question on the likes of judicial review. You are dodging the question. I am asking you, if they said to you, "We really don’t think this is a good idea, to go with judicial review, because this has been going since 1995, we have had hoards of evidence as a result of this, and really you should stop," would you make that public to show that you have got some degree of independence personally?

Anthony Browne: That is a good question. I think it would be important with the consumer panel to be as transparent as possible. We haven’t finalised the exact terms of operations of it. Ultimately-I can help lead on that, but my members have to agree. I should say I am in favour of as much transparency as possible. I want the BBA to be as transparent as it possibly can be.

Q2487 Lord McFall of Alcluith: That leads me on to the issue of culture and ethics. I was involved with a report from the Future of Banking Commission, which reported in June 2010, and I am quoting from that. It said that a British Bankers Association spokesperson said, "It’s not ethics that were the cause of the credit crunch-international standards on capital and setting risk were wrong." Would you agree with that statement?

Anthony Browne: No. In fact, in the letter that we sent you-another letter which was from us-we said that one of the clear underlying causes of many of the crises or many of the scandals in the banking industry has been a lapse in professional ethical standards. There clearly has been-and that lapse of standards has been damaging to the international reputation of London, and one of the things we should try and do collectively as a country, and we will try and play our part, is to make the UK a world leader in standards in banking.

Q2488 Lord McFall of Alcluith: That is a comforting answer but it poses a dilemma regarding the issue of culture and values for the industry. I put it to you, Mr Browne, that, as it exists at the moment, industry knows it should behave, but in a competitive, conflicted and complex environment it cannot live up to these ideals. For example, last week we had the code of practice given to us by UBS, which was worthless, and in the same Future of Banking Commission report we came across the code of ethics from Goldman Sachs which said we need "Integrity and honesty…at the heart of our business. We expect our people to maintain high ethical standards in everything they do, both in their work for the firm and in their personal lives". But Goldman Sachs added, rather ominously, "From time to time, the firm may waive certain provisions of this Code." Isn’t that the situation banks are in: they have these codes of ethics; they look good in their annual report, but there is always a very sophisticated escape clause?

Anthony Browne: As your previous witnesses, or at least one of them, said, codes of ethics do not mean anything if they are just bits of paper that people tick. Indeed, Martin Taylor said when he gave evidence to you that it is pointless training people or getting them to sign codes of ethics on the Friday, if on the Monday they are given bonuses that encourage them to behave unacceptably. We set out a range of different proposals-

Q2489 Lord McFall of Alcluith: Okay. I am fine on that. Therefore, you are saying to me that the industry presently has ethical blindness, and that being the case-

Anthony Browne: No, I was not saying that, actually.

Q2490 Lord McFall of Alcluith: So what are you saying?

Anthony Browne: I was saying that codes of conduct need proper enforcement throughout organisations. They need to be embedded within organisations-

Q2491 Lord McFall of Alcluith: But where are the good ethics? Point me to the good ethics in the industry. Again, in your speech to the international bankers, you said that "As an industry, we have to show that we are on the side of the good bankers, determined to cut out the bad bankers". I want to know who the bad bankers are you were talking about.

Anthony Browne: That was a reference to the bankers who break the law or break-

Q2492 Lord McFall of Alcluith: Who are they?

Anthony Browne: Well, I mean the list of names: the people who, to the extent that they broke the law manipulating LIBOR or attempting to manipulate LIBOR, for example-

Lord McFall of Alcluith: So tell us who the bad bankers are, then. You have made it very clear in your speech, and I just want clarity here.

Anthony Browne: The bad bankers are the bankers who break the law. We should have absolutely no tolerance-

Lord McFall of Alcluith: So who are they, the ones you were referring to?

Anthony Browne: You mean in terms of individual names?

Lord McFall of Alcluith: Yes. You said "the bad bankers"-who are they? I just want to know.

Anthony Browne: I have a list of 292 people who were chucked out of the approved persons regime. They are prohibited from working in financial services.

Lord McFall of Alcluith: Who are the bad bankers, then? Tell me who they are and what banks?

Anthony Browne: Do you want me to read all their names?

Lord McFall of Alcluith: I am talking about the banks. Who are the bad banks then, the bad bankers-the ones at the top, because tone comes from the top, as you have said?

Anthony Browne: Who are the bad bankers?

Lord McFall of Alcluith: Yes.

Anthony Browne: All banks have had them. You asked this point, although I cannot remember which one of you, very eloquently of Angela Knight. All banks-not all banks, but many banks have had problems. If there are industry-wide problems here, it needs to be cleared up industry-wide.

Q2493 Lord McFall of Alcluith: Okay. We are not getting anywhere with that.

Given the ethical blindness, would you be quite content to sign up to an ethical code from the BBA, and also to a standing commission on banking, which is independent and looks at the progress that banks are making? There is this disjunction between what is happening in banks, which are telling us that they have cleared it up, and the public perception and the political perception that nothing has happened. Would you agree to both of those-the ethical code and the standing commission?

Anthony Browne: For the industry?

Lord McFall of Alcluith: Yes.

Anthony Browne: Yes. We have set out in a range of proposals that one of the options-we were quite careful: we did not want to tell you what we thought you ought to recommend-is clearly having a powerful industry-wide code of conduct, but it would have to be upheld, and it would have to be upheld by an independent body or the regulator.

Lord McFall of Alcluith: Well, that is good.

Anthony Browne: But I should make it clear, because I know that this question has come up several times, that we were not proposing that the BBA should be any form of regulator in the industry or-

Q2494 Lord McFall of Alcluith: Okay. Lastly, I want to know if the BBA has any sanction to remove from membership a member firm that you believe has behaved poorly. When did you last remove one?

Anthony Browne: In November 2011 we removed two banks, because of the sanctions regime against Iran.

The broader point, as I mentioned earlier, is clearly that a lot of banks have had problems. There is an industry-wide problem at the moment on a whole number of different fronts that we need to clear up, but is it better to get rid of all the banks that have brought the industry into disrepute, following up the questions to Angela.

Lord McFall of Alcluith: My colleague Mark Garnier wants to ask about that.

Chair: We are moving on in that direction.

Q2495 Mark Garnier: Which were the two banks that you removed?

Anthony Browne: Bank Saderat and Persia International Bank. They were removed as members in November 2011, and the expulsion was confirmed in the December board meeting-it was also before I arrived there-as a result of the financial restrictions that were on placed on Iranian banks.

Q2496 Mark Garnier: Can I just ask you a bit more about your membership structure? I hear that you have 200 members. Is that right?

Anthony Browne: It is roughly 200, yes.

Q2497 Mark Garnier: These are all corporate members, so you only have corporate.

Anthony Browne: We do not have individual members.

Q2498 Mark Garnier: If you have a banking group-for example, RBS-would RBS be a member in its own right, or would you have RBS as a member and then perhaps Coutts, as one of its subsidiaries, as a member in its own right?

Anthony Browne: No, it is basically the groups. Normally, it is the groups that are members.

Q2499 Mark Garnier: Normally, but can you confirm that one umbrella group-

Anthony Browne: I think I am right in saying that Coutts is not an individual member; it is a member as part of the RBS group.

Mark Garnier: I am not talking specifically about Coutts.

Anthony Browne: Each banking group is basically one member.

Q2500 Mark Garnier: Each banking group is one member. That is fine. We have heard that 60% of revenue comes from-

Anthony Browne: It is 59%.

Q2501 Mark Garnier: Apart from membership fees, do you have any other source of revenue?

Anthony Browne: We do. We had some revenue from LIBOR, but mainly it is training conferences.

Q2502 Mark Garnier: How much of your revenue comes from LIBOR?

Anthony Browne: About £2 million a year.

Q2503 Chair: Out of?

Anthony Browne: Out of £10 million.

Q2504 Mark Garnier: So 20% comes from LIBOR?

Anthony Browne: Roughly.

Q2505 Mark Garnier: Which you are about to lose, aren’t you?

Anthony Browne: Yes.

Q2506 Mark Garnier: Okay; so you are about to lose 20% of your revenue. How much does training contribute to the £10 million?

Anthony Browne: I haven’t got the precise breakdown here, but I can supply that.

Q2507 Mark Garnier: What is the ballpark figure?

Anthony Browne: The training is about another £1.5 million, I think.

Mark Garnier: So, £1.5 million.

Anthony Browne: That is net. When you do training conferences, you deduct costs.

Q2508 Mark Garnier: So of the £7.5 million left, which is actually going to come to-

Anthony Browne: That doesn’t quite add up. There is about £2 million from training, I think.

Mark Garnier: Sorry, it is £6.5 million.

Anthony Browne: Yes, it is £6.5 million. The figures do add up. Sorry, I am following your maths. I should not rely on your maths. I can provide you with the precise figures, if you want. Our latest accounts-

Q2509 Mark Garnier: I am just trying to get a ballpark figure. So £6.5 million of your revenue comes from membership fees, which is going to become more significant, given that you are about to lose 20% of your revenue because you are losing LIBOR.

Anthony Browne: We have a lot of opportunities to expand training and conferences, so we are dealing with it.

Mark Garnier: Sure. Where I am going with this is that-

Anthony Browne: We are recruiting members, actually. Some 150 banks in Britain are not members of the BBA.

Mark Garnier: That is very interesting.

Anthony Browne: Although they tend to be small ones.

Q2510 Mark Garnier: None the less, that is £6.5 million, 59% of which is generated from just five banks, which puts a huge onus on those banks.

Anthony Browne: One of the things I said in my submission to you today was that we are reviewing the membership formula this year, which will come into effect next year. We need a clearer distribution. One of the things we have set out in our draft strategy is that we will represent the entire cross-section of banks in the UK, and I am clear that we should be seen to represent not just one subset of banks, but also the small banks. We have a small banks panel at the moment that has quite a few members, including private banks, challenger banks, foreign banks, international wholesale banks and so on. We should clearly and openly represent all of them. When people say to me, as you have been implying, that we are the "big banks association," I am clear that we are not; we represent all banks.

Q2511 Mark Garnier: You have been accused of being the "big banks association" by a number of small banks. The fundamental point is that 59% of the £6.5 million that is relatively secure comes from just five banks. Last week, we asked Angela Knight about sanctions and removing banks. Clearly, you can remove banks-you have removed banks, but they were smaller banks-but when it comes to the bigger banks, such as RBS, UBS and Barclays, if you were to start removing banks because they have been fined heavily by international regulators over the LIBOR scandal, you would have absolutely no membership. You would then have very small revenue, wouldn’t you? Therefore, you have a commercial interest in supporting those big banks.

Anthony Browne: There is a question here that to have an expulsion procedure you need to have a clear definition of why you are expelling people-"this is the reason"-and a process to go through. If the definition is involvement in some scandal or other, an awful lot of banks have been involved in scandals and our membership would fall radically. The more relevant point here is that, clearly, a couple of banks have been fined for LIBOR, and more will come down the line. Others have been fined for other things. A lot of them are paying a lot of compensation over PPI, for example. They have been involved in scandals, but I think you will find that the chairmen and chief executives of the banks, if you get them to give evidence here, are mostly very impressive individuals who are trying to sort out their institutions. They are trying to get it right-they are trying to do it right-and we want to help them to get it right and to try to ensure that it is a customer-focused industry.

Q2512 Mark Garnier: But assuming that the British Bankers Association-or the big banks association, or whatever you want to call it-is a noble thing to be a member of, is there not a case with something like RBS, which has clearly got it wrong at so many different levels, first of all blowing up and having to be bailed out by the taxpayer and subsequently on LIBOR, for moving it to a temporary membership category in order to send a clear message to the world that you are actually taking this seriously? Right now, the message that seems to be being sent to the world by any number of different organisations representing banks is that if you are big and important, you can do pretty much whatever you like, and there are not very many sanctions against you, apart from a bit of a fine imposed by a regulator.

Anthony Browne: You raise interesting points. I have been in the job for four months, and I have been dealing with a lot of different things. The issue of expulsion is something I have discussed briefly with my chairman, and it is something we need to think clearly about, I agree.

Q2513 Mark Garnier: But you don’t really have any realistic sanctions against the big banks, do you? That is the bottom line.

Anthony Browne: But also, to expel an entire bank-they are big operations-

Q2514 Mark Garnier: But there are no sanctions. This is the point. I understand what you are saying-

Anthony Browne: A lot of the questions that I have had over the last few months have implied that we are a regulator in some way. We are not a regulator. It is not our job to regulate people.

Q2515 Mark Garnier: I don’t think we are suggesting that, but it is rather like the previous witnesses who you were listening to, with their golf club analogy. Ultimately, if you are an organisation that wants to be taken seriously-

Anthony Browne: We have chucked out members.

Q2516 Mark Garnier: Yes, but they were small members. It takes two seconds of cross-examination to work out that you have such a financial interest in the big members. You are about to lose 20% of your income because of LIBOR. If you were to-

Anthony Browne: I should say that the board unanimously agreed a fee increase to cover the cost of LIBOR income, as it happens, in the December board meeting.

Q2517 Mark Garnier: Well, hurrah, but of course it makes them that much more important, does it not? The point is that they are now 59% of 80, as opposed to 59% of 100.

Anthony Browne: I have not done the new figures.

Q2518 Mark Garnier: But do you agree that that is a valid point, and a valid criticism against the BBA-that you are beholden to five big organisations, and ultimately you do not have very strong sanctions against them, or indeed any realistic sanctions?

Anthony Browne: You are right that it is obviously difficult to sanction members who supply big incomes, but the point I make is that even if you had a strong sanctions regime, would it be right to sanction a bank that does a huge number of things in this country and expel it or whatever because of one particular problem in one area, like LIBOR? Barclays got fined for LIBOR. The number of people involved in LIBOR at Barclays-it is a terrible thing, and what happened with LIBOR is appalling, but it did not necessarily reflect on Barclays’ entire operations. I do not know how many hundreds of thousands of people they have.

Q2519 Mark Garnier: Yes, but the entire operation of RBS went bust.

Anthony Browne: Yes.

Q2520 Chair: Before bringing in Andy Love, I want to be clear what you mean by a bad banker. You said earlier that a bad banker was somebody who had broken the law, but it is much more than that.

Anthony Browne: That is one example. It is a clear example that we can all agree on.

Q2521 Chair: Yes, but you would agree that someone who mis-sold products on a vast scale was a bad banker.

Anthony Browne: The broader point that I was trying to make is that I think that the industry should take the moral high ground on the behaviour of bankers, and should not defend behaviour that is unacceptable and is seen to be unacceptable. As I said, we are not a regulator and we do not regulate individuals, but people who break the approved persons regime and get prohibited and so on should be chucked out.

Q2522Chair: So we are clear that people are bad bankers if they are no longer considered fit and proper to be an approved person? We are agreed about that?

Anthony Browne: Yes, I think I agree on that as well.

Q2523Chair: And we are agreed, aren’t we, about people who mis-sold products on a vast scale?

Anthony Browne: Yes, if they have broken the regulatory regime.

Q2524Chair: Well, what does that mean? When you say you want higher standards, this is exactly the point that I am on. Are you relying on the approved persons regime to tell you that, or are you saying that there is a standard beyond that?

Anthony Browne: We want to raise standards across the industry for everybody.

Q2525 Chair: I am asking you if someone has mis-sold products on a vast scale-

Anthony Browne: You are talking about-

Chair: Someone who has been out there selling PPI to hundreds of people knowing that they do not need it.

Anthony Browne: One of the things we have suggested in the options that we sent you about standards is an industry-wide code of conduct that the banks-you could have a banking standards board or a banking standards review council-would oversee and ensure that the code of conduct was properly implemented. One of the options is that if bank employees are deemed to have broken the code of conduct, they should, as part of their employment contract, lose their job. Another example-

Q2526 Chair: That will be enough as an example. As long as we are in the same place, we can move on. I want to make sure that we are clearly in the same place. Somebody who has mis-sold products on a vast scale will have done that.

Anthony Browne: They should have done, yes. We do not have a code of conduct. We have not precisely defined it. Clearly part of it should be looking after the interests of customers.

Q2527 Chair: It would do in future, given where you want to take your code.

Anthony Browne: Yes, absolutely. Mis-selling is completely unacceptable and there is no defence for mis-selling. You should not encourage practices that encourage mis-selling.

Q2528 Chair: I just want to be clear what is meant by the phrase "bad banker" when you use it. I just want to give one more example, then by all means add a lot more. Take someone who has, for example, made colossal misjudgments that cost the taxpayer billions of pounds. Would you think that that is an example of a bad banker?

Anthony Browne: There is a very interesting question here-the Government have obviously got a consultation on the duties of and possible criminal sanctions against directors of banks-about what constitutes recklessness and negligence. You have to think very carefully before you criminalise making a bad business decision, if that is the route that you are going down.

Q2529 Chair: Again, you have gone all the way back to where we started this conversation about three minutes ago. We began three minutes ago by saying how a bad banker is not just somebody who has become a criminal and broken the law. It means more than that, doesn’t it, and you gave what felt to me like a helpful answer, which was, "Yes, and it means a lot more." So then I tried to explore what "a lot more" might entail and we arrived at somebody who has made a colossal misjudgment and thrown away billions of taxpayers’ money, and you seem unsure whether that person is a bad banker. He is clearly not a good banker, so he is likely to be a bad banker.

Anthony Browne: No; the point I was trying to make is that running businesses, small and large-particularly small ones-is very difficult. It is difficult to predict the future and to know what circumstances you are going to find yourself in. Good people make bad business decisions. That is the point I want to make. You can make the worst possible business decision. To talk about a completely different industry-

Chair: I agree. It is a fair point.

Anthony Browne: Bill Gates missed the internet and Nokia missed smartphones. Nokia’s share price collapsed.

Chair: We all agree.

Anthony Browne: Does that make the head of Nokia a bad person?

Q2530 Chair: We all agree and you are making a fair point, but a particular duty of care is required where a firm benefits from an implicit guarantee.

Anthony Browne: Well, that is the point that I was trying to make.

Q2531 Chair: On the Nokia example you gave, or the Vodafone example, they do not have a state guarantee standing behind them, do they?

Anthony Browne: No.

Q2532 Chair: So it is different. Therefore a bad banker is likely to be somebody who triggers on a vast scale a state guarantee, unless there is a incredibly good reason why it happened.

Anthony Browne: If they are acting recklessly, yes, I would agree with you, but just making a bad business judgment-

Q2533 Chair: Do you think Fred Goodwin was a bad banker?

Anthony Browne: It’s difficult to say-

Q2534 Chair: Do you think he was a good banker?

Anthony Browne: With the benefit of hindsight, he clearly took-

Q2535 Chair: If I may say so, your hesitancy over questions like that is not the best place to be.

Anthony Browne: Okay. He clearly was a bad banker. He took a bank and drove it to ruin, although it is easier to say that with the benefit of hindsight.

Q2536 Chair: Would you want him in your banking club?

Anthony Browne: As I say, I do not have to face that decision, because we do not have individuals as members.

Q2537 Chair: All these questions are hypothetical.

Anthony Browne: If we had individual members, would we want Fred Goodwin? Well, no, we wouldn’t.

Q2538 Chair: As a member?

Anthony Browne: No, we wouldn’t.

Chair: You wouldn’t. Good.

Q2539 Lord Turnbull: We took evidence-I think it was last week-from a number of professional bodies in their regulatory capacity. They included the GMC, the Institute of Chartered Accountants and the Law Society. One clear conclusion that came from that was that you cannot be a representative body and be the body that is, effectively, the regulator. There is a very clear distinction, and it is clearest in the case of the medical profession, where the BMA is the representative body and the GMC is the disciplinary body. In the case of the Law Society, the bodies are kind of linked, but they are pretty separate. Am I right in saying that you are making no bid whatever to be the disciplinary body? You want to be the representative body-in this case-of banks, rather than bankers?

Anthony Browne: We are the representative body for banks, and we should remain that. I referred earlier to the fact that we are making no bid to try to be the disciplinary body or the regulatory body for banks, because you end up far too conflicted.

Q2540 Lord Turnbull: But you are contributing to the debate, which is perfectly legitimate.

Anthony Browne: We want standards in the industry to rise. We want London to get back to the position of having such a high standards that they are gold standards for the rest of the world, so that people look to London and say, "Those are the sort of standards we should be following." We want to help the industry to get there. My members want that as well, because it is a competitive advantage.

Q2541 Lord Turnbull: One of the things you have proposed is a banking standards review council. What is the point of the word "review"? Does it not rather weaken things?

Anthony Browne: Well, I said you could call it a banking standards board or review council.

Q2542 Lord Turnbull: Just call it the banking standards council. You said it is envisaged that it would most likely be separate from the regulatory authorities. The one thing that has come out of both parts of the evidence-the earlier evidence from Mr Shreeve and Mr Thompson, and the evidence from you-is that unless the regulator takes action, effectively you can’t. The idea is that you have a separate power to do things.

Anthony Browne: We set out in our evidence to you a range of different options, all of which have benefits and disbenefits. One option is to tie this body in with the current regulatory regime. There are various different ways you could do that, but you could also set it up independent of the current regulatory regime.

Q2543 Lord Turnbull: The point I am making is that if you set it up independently, and the regulator decides not to act on such and such a bank, where people have been removed as approved persons, it will be pretty difficult for you to take action. The conclusion I draw from that is that the only future of this thing is not necessarily as part of the regulator but under its auspices; it is not separate from the regulator, because the regulator is the only person in the country who really has the powers.

Anthony Browne: The point we make-this often gets missed in debate-is that we have a powerful regulator in banking; it is not an unregulated industry. On the point you make, I agree. We set out the range of the options, and some of the drawbacks are that you do not want to create almost a three-peaks regulatory system-you could imagine there being four peaks if you invent a new body. If you create a lot of duplication and overlap between different regulators, it is confusing not just for people in the industry but for the public, because they do not know who to rely on. You could have a regulator that does the hard regulatory function. You could then decide following your evidence sessions to have an independent banking standards council. It might need some sort of statutory underpinning to compel people to be members and so on, which you cannot do on a voluntary basis, but it does not have to be tied in to the regulator. But I agree: making it part of the regulator in some way, or putting it under the auspices of the regulator, is one solution.

Q2544 Lord Turnbull: In the case of the law, you have the Legal Services Board, the Law Society, which is the representative body, and then something called the-

Anthony Browne: Solicitors Regulation Authority.

Lord Turnbull: Thank you.

There could be some arrangement of that kind, but I do not see a future for a banking standards council that tries to go it alone, separate from the regulator. It can have power delegated to it to cover certain kinds of cases, and the really big ones go to them, but I would argue that for you to try to set up a separate register and separate disciplinary procedures when they have got them-they are certainly not going to strike off people you strike off.

Anthony Browne: We had a lot of discussions about this, and the first part of our evidence is about strengthening the existing regime. Indeed, we have said this-remarkably, you may not expect us to say this, but we have said it to the FSA: the approved persons regime certainly needs to be made a lot more visible and be more obviously enforced to give more public confidence that it exists. There is a problem with it, which is-it is slightly frustrating for us-that they do not separate out banking from the rest of financial services. A lot of its members are financial advisers. There are 156,000 people on it. We have asked the FSA many times how many of those actually work in banks, and they cannot tell us, which is a frustration for us, because it would be a lot easier to say, "There are this many approved people on the approved persons regime who work in banks."

The regime is limited in scope, in the sense that it has-I assume you have read the evidence-the significant influence functions on the top level of the banks, and there are some people on the customer-facing side. However, an awful lot of people in banks are not part of the approved persons regime and so do not fall subject to its sanctions. For example, the people who submit LIBOR data and the people who are trading on the back of LIBOR data would not have been part of the approved persons regime. That is why we said that one of the first things that we think needs to be looked at is expanding the regime to cover the sort of people you would expect to be covered by it and make it more public and visible.

Q2545 Lord Turnbull: They’ve got to improve on their turnaround time, which is about 110 days.

Anthony Browne: You heard from the professional institutes here. They also have individual members. That is more akin to the institutes in accounting, for example, that deal with professional standards, so there is a register of their individual members. As you said to them, they are a small part of banking, but their membership is growing rapidly. But that is two lists: the approved persons regime and the members of the institutes. Creating another register would, I think, add to confusion.

Q2546 Lord Turnbull: Is there another loophole? You are running a bank and it fails. It may not go bankrupt; it gets absorbed by someone else and needs public money to be put into it. There does not seem to be a process that then says, "Because you have done this, you’re no longer suitable to be an approved person." You can maybe carry on being an approved person in some smaller organisation. But it does not seem to carry through that if you have been part of a failed bank, all your other authorisations get revoked at the same time.

Anthony Browne: I think there are quite a lot of questions like that that need to be asked of the approved persons regime. It needs to be toughened. One of the things, again, that we suggested was that if banks start-initiate-disciplinary proceedings against individuals who then resign before the disciplinary proceedings are completed, the bank should submit the fact to the authorities that disciplinary proceedings were initiated, even if they were not completed, because obviously there is a danger here, as with policemen or whoever else, that people will resign before the disciplinary hearings proceed. There is an issue in banking-there is no doubt about it; we want to try to resolve it, one way or another-that the bad pennies circulate, as it were. They can leave one bank and then go to another bank. The bank that they leave might be quite glad to get rid of them, but the banks that end up taking them on board unwittingly will wish there weren’t these bad pennies circulating.

Q2547 Lord Turnbull: My final question is about page 10, which I think you have already referred to-a series of sanctions on directors, a rebuttable presumption that the director of a failed bank should not hold a similar position, the extent of the criminal sanctions to cover managerial misconduct, and so on. Have you responded to this consultation yet?

Anthony Browne: We have, yes. There is a Treasury consultation out.

Q2548 Lord Turnbull: Are you in favour of this, or are you saying-

Anthony Browne: They set out a range of different options. We are opposed, as are the Government-I think we are largely aligned with the Government on this-to strict liability for directors. We were broadly in favour of criminal sanctions for the reckless behaviour of directors of failed banks. Our only caveat is that you would need to be clear about the legal definition of "reckless". What you do not want-this comes back to my point about business decisions-is for people about to buy another company or something to go to their general council and say, "Would this make me fall foul of the reckless behaviour? What is the definition of that?" The general council might all say, "You can’t do that." You just need legal clarity on exactly what the definition of "reckless" is.

Q2549 Lord Turnbull: In general, however, you are in favour of some degree of extension of the sanctions.

Anthony Browne: Yes. Our submission was broadly supportive.

Q2550 Mr Love: May I stay on the theme of strengthening professional standards? You indicated earlier, and in your written evidence you put forward, a series of options but you do not reach any conclusions. Which of the alternative options does the BBA prefer?

Anthony Browne: The reason why we did not say definitively, "This is what should be done," is that there was a degree of humility. We wanted to provide you with our thoughts on the range of different options and the pros and cons, and it is up to you to make up your own mind. There is a lot of appetite in the banks to have some sort of independent banking standards council that would set, monitor and uphold the ethical standards in banks. You could combine it with a profession; the professional standards board would oversee the training and technical competence standards of the professional issue. So it would be one independent body overseeing professional and ethical standards. We sent you a side letter from chairmen of the six main banks saying if you recommend this and it is supported by the authorities, they pledge their corporation to make sure that it is effective and works with the industry. We have a statement on it if you want, but you see it there. They would not have said that if they were not broadly supportive.

Q2551 Mr Love: That does not clarify matters. We are five years in from the credit crunch, so you have had plenty of time to discuss these matters. You recognise the importance of them, and you say you want to contribute to the debate, but you do not specify what your choices are. Have you consulted your members? Is there a clear view?

Anthony Browne: Of course we have consulted our members extensively. We set up a taskforce to do exactly that, and we discussed it with a lot of the chief executives and chairmen of the banks. There are some things that there is clearer support for, and I mentioned the banking standards council. Strengthening the existing regime, like the approved persons regime, is something that it is clear should be done. Measures to help promote professionalism in banking-the professional institutes-there is definitely an argument, which they make themselves, to strengthen the oversight of their professional standards so you have actually got an independent body that oversees their standards, rather than them setting their own standards.

Q2552 Mr Love: You keep repeating-rightly, in my view-that trust and confidence is the priority for the BBA at the present time, but it sounds as though there has not been a full, proper discussion at the BBA of these matters of strengthening professional standards. Would that be right? Are you just looking at what each of the individual banks is saying, or are you actually consulting and discussing what the BBA position should be on this?

Anthony Browne: We have consulted a lot with our members. We took the decision-maybe wrongly, and we can follow that up-that rather than telling you what we think you ought to do, it would be better, with a degree of humility, to come up with a range of different options that are out there and what the pros and cons are.

Q2553 Mr Love: Since you take such a definitive position on behalf of the banking sector in this country in certain aspects, why can’t you take a definitive position here? Why are you hedging your bets? Is it not important that the banking sector talks with one voice on this critical issue, which you recognise is at the bottom of trust and confidence in the sector?

Anthony Browne: As I said, we have got a side letter which was written with the support of the chairmen of the six main banks, who said if you recommend establishing a single body to monitor and uphold banking standards in the UK, they will pledge their complete support for it. That is quite a strong statement.

Q2554 Mr Love: Can I move on? You mentioned in a number of your answers that you believed that they need to improve the Approved Persons Regime. You commented in your evidence that the FSA already has the powers that it needs to enhance professional standards. You also go on to say, "It can also be questioned whether, historically, the regulatory authorities and law enforcement agencies have given sufficient priority to enforcement action." Are you trying to tell us that all the issues lie with the regulator? Is not there a role for the banking sector?

Anthony Browne: There is definitely a role for the banking sector. The first port of call should be just looking at what the deficiencies are in the current regulatory regime rather than-and this is coming back to Lord Turnbull’s point-setting up an entirely parallel regime that overlaps it and tries to replicate it in some way. If the existing regime has failed in some way, we should look at those failings and how the regime needs to be strengthened. But absolutely, there is a role for the banking sector. The banks are committed to playing a full role in this. They have pledged their support to what recommendations you and the Government come up with in this area.

The banks are also doing a huge amount internally. Part of the reason why the membership of the professional institutes is growing is that the banks are giving them a lot more support to try and professionalise the staff who work for them. It may not be the complete solution. One of the things that we realised through all our work on this is that there is no single silver bullet-no magic bullet-that is the solution to all the problems in ethical and professional standards. It will be a range of different things. We categorise them into three different areas: strengthen existing regimes, which we have talked about; bottom up, which is professionalising the staff and making sure that they get better training and education and so on; and also a more top-down regime, which is making sure that the banks have proper processes and controls that uphold those standards. That is what a banking standards board could actually help monitor and enforce.

Q2555 Mr Love: Do you not accept that there has been one scandal after another? It is not just the original problems that arose in the banking industry, but a whole succession of them. We continue to have scandals. Even this week, further scandals are emerging. Isn’t the BBA seized with the need to address how we tackle those? Above everyone else, should you not be looking at this and coming forward with recommendations?

Anthony Browne: We are and we have. It depresses me beyond measure, all the different scandals there are in the industry. I am aware that there are probably more to come, which is even more depressing.

Chair: It depresses us.

Anthony Browne: I share your depression on this. A lot of the different scandals have specific different causes. There is, however, as I said at the beginning, often an underlying theme, which is a lapse in and a loss of professional ethical standards in banking. That is why we need to raise the standards. Hopefully, if we raise the ethical and professional standards in banking, that will go some way to reducing the number of scandals in future.

Q2556 Mr Love: If you accept that the industry has some responsibility for all the scandals, the BBA must share in that responsibility. You said earlier that you accept responsibility for the failures of the LIBOR regime. You talked about changing your name and why you have not changed your name. Doesn’t the BBA need to reinvent itself-perhaps under the same name-after all the things that have happened in the industry?

Anthony Browne: I am the new chief executive. I have a new chairman. We are taking a lot of measures that the BBA did not do before. We have an advisory council, a consumer panel and a strategy document that commits us to helping customers, promoting growth and raising standards. Those are all things that we did not do before. We are trying to do the right thing to help the industry to get to where it needs to go.

Q2557 Mr Love: Is it just the industry? Trust and confidence in bankers will only happen when there is trust and confidence in the BBA. Would you not accept that?

Anthony Browne: Hopefully, by doing the right thing and things that I hope you agree are right as well, after a period of time we will be judged by what we have done-I will be judged by what I have done and my chairman, Sir Nigel Wicks, will be judged by what he has done. We could change the name, but that is a completely pointless gimmick. Some people have said, "Oh, close the BBA and open a new one", but, honestly, I have been involved with closing down and opening a lot of organisations, and you spend two or three years doing it, but nothing happens in the meantime. It is a completely pointless exercise. We have got an organisation, and banking needs a representative body-it needs a trade association, like all other sectors. We do an awful lot of valuable work, and some of the first people to call for a trade association of banks, were there not one, would probably be the Government and the regulators, because often they want a single voice in banking. The point is to get the representative body of the industry to do what everyone agrees needs to be done.

Q2558 Mr Love: One accepts that there is a need for a representative body, but do you not have to go back to first principles and recognise the mistakes that have been made and, through that mechanism, as you say, re-establish that trust and confidence in your organisation and, through it, in the banking sector?

Anthony Browne: Absolutely. Just as an example, to come back to a point made by the Chair earlier, one of the things that I want to do-we talked about a couple of members-is to do a "lessons learned" exercise about the whole PPI thing. It is a massive problem for the industry, and we need to look at what the lessons learned are, both as a trade association and as an industry.

Q2559 Chair: You would agree, would you not, that there is this massive reconstruction job to do for the BBA and that you are at the relatively early stages of doing it?

Anthony Browne: Yes. Our reputation has been knocked. Every time I meet politicians, they attack the reputation of the BBA, so I am not defending it. In my draft strategy document-hopefully, once it is agreed, we will publish it and share it with you-there is a specific part saying that we need to restore the reputation of the BBA.

Q2560 Chair: Your evidence on that and on a number of other issues has been frank and very helpful. We are very grateful.

I have one last question. You said earlier that high standards in London would give it a competitive advantage globally. Does that mean that we should be less concerned about banks leaving, or the threat of banks leaving?

Anthony Browne: I was talking about ethical and professional standards. If they are done right, and if they are proportionate and well done, it is a competitive advantage for London.

Q2561 Chair: And banks will come.

Anthony Browne: People would want to come and do business in London, absolutely. London historically, as you know, has had a reputation for probity, and it still does in places like the legal profession. There is a reason why-it is a little-appreciated fact-London is the legal capital of the world. Japanese companies do business with Korean companies, and they do it under English law for arbitration in English courts. That is why we have a lot of world’s largest law firms in London-because English law and the English court system is seen as a system with real integrity and probity, and that brings business to London. If it didn’t have that reputation, we wouldn’t be the legal capital of the world. The same applies for banking. We need to have that reputation for probity and integrity, so that people are happy to come here with their deals, because they know they will get a decent, honest service that they can trust. There is absolutely no doubt about that. Historically, that has been London’s advantage, and we need to restore it to that.

Chair: That was a very helpful final set of remarks as well. Thank you very much for coming to give evidence.

Anthony Browne: Thank you.

Prepared 18th June 2013