Banking StandardsWritten evidence from Barclays

In August, Barclays submitted evidence to the Parliamentary Commission on Banking Standards proposing the establishment of a “Chartered Institute of Bankers” and a Register of Approved Bankers. Since then, Barclays has undertaken extensive work—both on its own, including commissioning legal advice on the potential complexities of setting-up such a scheme, and alongside other banks via the British Bankers’ Association (BBA). Recognising that the Commission is now actively considering a similar set of issues in some detail, this note is intended to provide the Commission with some additional information that Barclays thought might aid those deliberations.

Barclays participated in the creation of and fully supports the BBA recommendations previously submitted to the Commission by Sir Nigel Wicks, Chairman of the BBA, on behalf of the largest UK bank chairmen. This information is explicitly intended to complement and build on the BBA submission by outlining the work that Barclays has done as a sole institution.

Barclays considers that the Commission should make a clear and explicit distinction between improvements in the standards that guide behaviour of “bankers” (however so defined) and the qualifications that different types of “bankers” need to do their jobs properly. The former can and should include a universal standard, while the latter must be tailored to specific role types. Barclays original submission to the Commission was not as clear on this demarcation as it could have been.

The focus of this note is on the subject of standards, not qualifications, as we believe that this is the pressing issue for the UK banking industry, in the context of cultural transformation, and relating to professional standards, not professional qualifications. The competitiveness of the UK financial services sector provides sufficient testament to the adequacy of the qualifications of the individuals employed here. However, if it would be of interest to the Commission, we would be happy to prepare a point of view on qualifications separately.

With respect to standards, Barclays believes that what is required is an industry-wide “code” of professional standards. At minimum, we envisage that this code would consist of a “foundation” level for all employees (whether working in retail or wholesale environments) of all banks1 (domestic and foreign) operating in the UK. For domestic banks, such a scheme could apply across their global operations; for foreign banks, it could only be required to apply to their UK operations. While this might appear to create an unhelpful gap between domestic and foreign institutions, we do not believe that would have any material practical implications given the code is intended to shape minimum standards in behaviour, and all of these institutions will presumably have some form of internal code of behaviour that they apply across their global staff.

This “foundation” level of the “code” could then be tailored to suit particular role types. For instance, a further “leadership” level could be created for senior management, and certain “specialist” levels could be created for particular roles that merit specific standards because of the nature of the work required (eg, customer and client facing roles; trading roles etc).

For the avoidance of doubt, none of these “codes” are intended to establish a specification of the technical qualifications required for whatever set of roles is covered by each. Those would be covered wholly separately, if at all.

This “code” (and derivations from it) would set out clear principles for the behaviour expected of covered individuals. Those principles would need to set a higher standard than that set out by the Financial Conduct Authority as part of its Approved Persons Regime. Focusing the “code” on principles will ensure that they are not mistakenly regarded as a set of rules. They must be standards and need to apply across any eventuality that might arise in the course of relevant “bankers” (given the scope of the given “code”) completing the duties of their role. That cannot be achieved through a set of rules.

Barclays considers that such a “code” would need to be created and maintained by an independent body, such as the Banking Standards Review Council (BSRC) outlined in the BBA’s evidence. The BSRC would need to be an independent regulatory body; have a board made up of a majority of representatives from outside the industry2; be underpinned by statute requiring it to serve the public interest; and be funded by the industry.

The BSRC’s responsibilities would include:

Defining the scope of firms covered, including whether or not the application is voluntary or compelled;

Defining the specific scope of staff covered and any role types within that scope that required tailored versions of the “code”;

Engaging with a wide range of stakeholders to solicit input and feedback;

Defining and maintaining the “code”, including any derivations; and

Establishing standards for any training required to support the implementation of the “code” at covered firms.

The BSRC would also have responsibility for ensuring covered firms comply with their responsibilities with respect to putting the “code” into practice through auditing and assessing practical application. This will be done at the firm level, not the individual, and include specifying how compliance with the “code” and its application requirements will be determined, monitored and audited. This will require careful design given the practical implementation of such a “code” will be subtly different in those firms where it has been successful and those where it has not, especially over short periods of time.

However, we remain of the view that the success of such an arrangement will hinge on the ability of the BSRC to establish and enforce requirements for sanctions against breaches of the “code”. Given the various considerations involved, any sanctions system established would need to:

Protect appropriately the privacy and confidentiality of individuals;

Have a transparent and fair basis through which sanctions are determined;

Efficiently coordinate with existing personnel procedures inside institutions and the FSA/FCA ie, does not create a bureaucracy);

Ensure that any individual at risk of sanction has access to an effective appeal mechanism; and

Provide for any individual sanctioned to have access to independent arbitrage.

To be effective, Barclays believes that individual covered firms would need to commit (or be compelled by statute) to communicate to the BSRC where a colleague is dismissed for a serious breach of the standards set out in the “code”. Those firms would also commit to checking with the BSRC before they hire any individual.

These activities of the BSRC related to sanctions, in particular, may require it to have a statutory underpinning given their sensitive nature. A voluntary approach offers the advantage of being quicker to implement, although it also presents potential legal challenges to the authority of the BSRC. Underpinning the BSRC by statute, however, overcomes a number of the challenges of the voluntary model. (See appendix for a fuller explanation of the considerations involved).

Finally, as part of serving its public service duty, the BSRC would need to conduct all of its affairs on a completely transparent basis.

Barclays recognises that there are a number of existing bodies that could form the basis of such a BSRC or deliver a part of its remit—either as an outsourced delivery agent/partner or as one of several regulatory bodies established to achieve a similar overall objective. These range from the existing Chartered Institute of Bankers to the FCA (given their Approved Persons Regime). However, Barclays believes it is important, at this particular juncture of the process, to remain agnostic as to whether or not any of these is fully fit for purpose until the requirements are fully specified and agreed.

Barclays is fully committed to playing its part in restoring trust of the British public in the UK financial services industry. We believe the professionalisation of standards across the industry is vital to achieving that aim and stand ready to support the Commission in whatever way we can in pursuing this agenda. In particular, we would be happy to provide further information to the Commission on any of the points highlighted if that would be of use.

APPENDIX

CONSIDERATION OF THE LEGAL AND PRACTICAL COMPLEXITIES OF ESTABLISHING A BANKING STANDARDS REVIEW COUNCIL

This note considers how a Banking Standards Review Council as outlined in the main paper might operate either on a statutory or non-statutory basis, and the practical challenges to be addressed in order to ensure the body is an effective mechanism. Many of the challenges could be most simply addressed by placing the body on a statutory footing.

Executive Summary

There are two basic models that could be adopted; a voluntary scheme which participating banks agree to join or one created by statute. Other professions (the law, medicine etc) have governing bodies that are set up under statute.

In either case, there will be a number of significant challenges relating to the scope and powers of any body, for example:

Identifying who are “bankers” for these purposes and whether it would include back-office employees, contractors, and directors who are not also employed;

How to deal with overlap with the FSA (especially the FCA) and other regulators; and

What impact, if any, it would have on overseas bank employees.

A voluntary, non-statutory model would present practical and legal challenges which are potentially significant though not necessarily insurmountable. These challenges would be particularly acute under a structure where those whose ability to work in the banking industry in the UK may be limited in some specific way, as opposed to an advisory scheme of those who have been disciplined by a member bank whom another bank could choose to hire if they wish.

A model created by statute would overcome, by legislation, a number of the challenges of the non-statutory model. However, it would lead to greater external involvement and tighter process requirements.

Practical challenges under both a non-statutory and statutory model

The challenges below will need to be addressed in creating a scheme under either a non-statutory or statutory model:

Identifying staff within the scope of the code—who is a “banker” for these purposes? Will different aspects of the code apply depending on the nature of an individual’s role? Can this be applied consistently across banks?

How will the “code” apply to contractors?

How will it affect overseas employees of a bank, if at all?

How to achieve a consistent approach where a bank operates in multiple jurisdictions?

How to ensure consistency of approach by organisations in applying the “code” and reporting infringements? (For example, the possibility of participating banks agreeing as part of a compromise agreement exit that an individual will not be reported to the scheme?)

How to ensure it complements rather than conflicts with the FSA/FCA’s “fit and proper” and Approved Persons regimes?

A non-statutory model—challenges and advantages

The principal advantage of non-statutory model would be that it could more closely reflect the shape of the industry. However, any powers and ability to impose sanctions would likely be constrained in comparison to a statutory body.

In the absence of any statutory authority over the employees, the scheme would have to derive its authority from a contractual agreement with the individual in question.

A bank could therefore make it a condition of employment that an incoming employee be subject to the scheme’s regulations and sanctions. Employee consent will be required if the scheme (as opposed to the employer bank) is to take any form of disciplinary action.

Existing employees’ contracts would have to be varied by consent. In the event of refusal, a company may opt to terminate and re-engage on a new contract with the relevant terms, which could give rise to a number of legal issues for example, unfair dismissal.

Consent would not be needed to compile and publish a register of approved individuals without the ability to impose separate sanctions. However, employees would need to be notified of the existence of the register and that their name is included on it.

There must be a risk that dismissal for refusing to be subject to the disciplinary sanctions of an unregulated body which could have the consequences of a lifelong exclusion from working in the banking sector would be regarded as unfair by a Tribunal.

If the scheme is not universally adopted, non-participant banks may be seen as more attractive employers by some people. Additionally, UK based branches of foreign owned banks may be reluctant/unable to “subscribe” to regulation by the scheme and its “code” if they are subject to local law regimes governing the “parent”.

The concept of being “struck off” (suspended from practice) under a voluntary scheme may have human rights implications. Article 6(1) of the European Convention on Human Rights (ECHR) provides that “...in the determination of his civil rights ... everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law. The right to carry on a profession is a civil right to which Article 6 applies3.

However, risk of a non-statutory register being challenged in this way can be reduced by avoiding any suggestion that the participant banks will not employ individuals on the register and specifically ensuring that this is not an express provision in the “code”, with employers making case-by-case judgements on hiring.

A similar register, operated by the fraud prevention service CIFAS, operates on this basis and includes a high evidential standard on information filed with it:

Information must be factual and accurate;

The criminal offence must be identifiable;

The Member must have sufficient clear evidence of wrongdoing to have reasonable grounds to press criminal charges;

the Member must be willing to make a full report to the police, although it is not mandatory to make such a report; and

suspicions and hearsay must NOT be filed to the database.

 A non-statutory register might adopt this best practice. It might also indicate:

Whether an individual is challenging any disciplinary dismissal;

Has successfully challenged a dismissal (as unfair or discriminatory); and

Whether names should be withheld from the register until such time that the limitation period for bringing an employment tribunal claim has passed.

The provisions of the Data Protection Act 1998 would have to be strictly adhered to.

A right of appeal would be required. Failing to do so would place the bank in breach of the ACAS code of practice on disciplinary and grievance procedures and could lead to any dismissal or disciplinary sanction being found to be unfair.

A statutory model—challenges and advantages

Nearly all professional bodies derive their authority from statute.

A statutory approach to the scheme could address a number of the above concerns related to data protection, competition, human rights and public policy considerations. Statutory provisions could, for example, provide for the following:

Power to regulate specific groups of employees;

Power to impose separate sanctions (eg, fines; suspensions; “striking off”);

The ability to regulate who can be employed in specific fields/roles;

The “judicial” process (including levels of appeal) to be applied in respect of any sanctions imposed by it; and

Address concerns under Article 6 of the European Human Rights Act that a tribunal be “established by law”.

If the scheme is established by statute, then banks covered by the “code” would be able to require their employees to comply with the code as a condition of employment (as a minimum standard) in the same way that an employer can require its employees to comply with its policies and procedures whether or not those policies and procedures are contractual.

Funding

Whether the scheme is a statutory or voluntary body, the issue of how it is to be funded must be addressed.

Levying a fee on individual employees might be problematic. Whilst the SRA levies registration fees on solicitors, those in private practice generally have those fees met by the law firms employing them.

If employees were required to pay the levy it should be noted that in order for it to be a tax deductible expense the scheme would likely have to be regarded as an approved body by HMRC; if the scheme is aimed at raising standards (via the “code”) and certain other criteria are satisfied then such approval may be forthcoming.

18 January 2013

1 For the purposes of this note, we do not define this term, but that would clearly be on the important early responsibilities of whatever body is established to set-up and administer this code.

2 The other members could include client and customer representative organisations; the Government; and industry representatives.

3 Le Compte and others v Belgium [1981] ECHR 3 This case concerned a decision by the Belgian equivalent of the General Medical Council, to strike the claimant medical practitioners off the register, with the result that they would be legally prohibited from practising that profession. It was held that the decision was "decisive" of their civil rights.

Prepared 19th June 2013