Banking StandardsWritten evidence from the British Standards Institution

Summary

1. BSI is of the view that voluntary, consensus-based standards could play a significant role in rebuilding trust and stimulating a culture of responsible behaviour within the banking sector. Such standards could be used in addition to the proposed legislation providing a practical means to reduce risk.

BSI Response

2. BSI has closely followed the publication of the government White Paper “Banking reform: delivering stability and supporting a sustainable economy” and the subsequent Banking Reform Bill in response to the recommendations of the Independent Commission on Banking. We have seen the call for evidence on the Banking Reform Bill and would like to submit a response with regard to issues of the management of risk, both internally and for banks’ customers. Our response relates in general terms to the 3rd objective of curbing incentives for excessive risk taking and to questions 1, 7 and 32 of the call for evidence.

3. We note as significant the submissions in response to the Banking Standards White Paper from City organizations, including the City of London Corporation, that appear to highlight a need for a fundamental shift in values and ethics in the City in addition to regulatory reform.

4. Much discussion to date has taken place around the merits of introducing professional standards for the banking sector, with a focus on assessing knowledge and experience as a method for dealing with conduct. However, even where professional standards and regulation are prevalent we feel there is also an opportunity to tackle values and culture at the organizational level through benchmarking of good practice and risk management. Unlike professional standards or qualifications, the self-regulatory approach of formal standardization is used to embed processes, systems and behaviours as well as competencies, applying to the business and its personnel.

5. Standards also provide a means for an organization to demonstrate to its shareholders, customers, investors not just that processes and values are in place but that operational, regulatory and market risks are being managed. We would suggest the potential impact of formal standards differs from the European and International standards for banking regulators, such as Basel III, by providing this confidence and assurance to external customers in retail markets.

6. As the UK’s National Standards Body, BSI believes that voluntary standards could provide a mechanism for the delivery of Government policy with regard to the improvement of trust and promotion of ethical behaviour in the banking sector.

7. BSI’s standards embody best practice through an open and transparent process of consensus-building among all relevant experts. Organizations outside of the banking sector routinely use standards to help reduce risks related to business critical functions and the impact on customers. BSI has developed a number of standards used within the financial institutions and firms for this very purpose and also to help organizations provide assurance internally and externally to customers.

8. An example of a standard that performs this function is BS 8453:2011 Compliance Framework for Regulated Financial Services Firms that was developed with City trade associations, professional institutes and practitioners from across the banking industry.

9. This standard provides a framework for managing compliance risk in financial services firms. It aims to help embed good practice in terms of processes, behaviours and to foster a culture of compliance within the firm’s governing body. Other retail-focussed standards have been developed with the Chartered Insurance Institute and consumer bodies such as Which? in order to help organizations meet changing business models and to provide transparent and fair personal financial advice and planning services.

10. BSI’s facilitation of the development of European and international standards offers an opportunity to harmonize good practices across Europe and globally.

11. BSI is currently exploring potential partnerships with City organizations and industry to determine the feasibility for formal standards to play such a role. Our aim is to do this by building upon our existing work and by developing a new strand of engagement with the City.

12. We would welcome the views of the Commission on the possibility of using voluntary standards to help rebuild trust and stimulate a culture of responsible behaviour within the banking sector and on any potential role for BSI in this regard.

Background on BSI

13. BSI is the UK’s National Standards Body, incorporated by Royal Charter and responsible independently for preparing British Standards and related publications. BSI has 111 years of experience in serving the interest of a wide range of stakeholders including government, business and society.

14. BSI presents the UK view on standards in Europe (to CEN and CENELEC) and internationally (to ISO and IEC). BSI has a globally recognized reputation for independence, integrity and innovation ensuring standards are useful, relevant and authoritative.

15. A BSI (as well as CEN/CENELEC, ISO/IEC) standard is a document defining best practice, established by consensus. Each standard is kept current through a process of maintenance and reviewed whereby it is updated, revised or withdrawn as necessary.

16. Standards are designed to set out clear and unambiguous provisions and objectives. Although standards are voluntary and separate from legal and regulatory systems, they can be used to support or complement legislation.

17. Standards are developed when there is a defined market need through consultation with stakeholders and a rigorous development process. National committee members represent their communities in order to develop standards and related documents by consensus. They include representatives from a range of bodies, including government, business, consumers, academic institutions, social interests, regulators and trade unions.

31 October 2012

Prepared 19th June 2013