Banking StandardsWritten evidence from the City of London Corporation

Introduction

1. The Mayoralty has played an active role in pursuing the contribution which the City of London Corporation can make in the area of raising standards and restoring trust in the banking industry.

2. The project, known as the Lord Mayor’s Initiative, launched in February 2011. Through a series of events and meetings, the City of London has worked with a wide range of stakeholders—including the banks themselves, professional bodies, trade associations, the regulatory community, academics and thought leadership groups—to identify the causes of the loss of trust in the banking sector, and to propose solutions. The City of London has, where appropriate, played a facilitating role in creating action plans to deliver those solutions, and to begin the task of bringing about substantial change where it is needed.

3. Under the Lord Mayor’s auspices, the City of London has also created a discrete work stream focusing on the possible creation of a Banking Standards Council, particularly for UK retail banking. Given the importance of this issue, the Lord Mayor has hosted three specially-convened meetings—at the end of 2012 and beginning of 2013—involving senior representatives from the British Bankers Association, the Association of Foreign Banks, the FSA Practitioners Panel, the Lending Standards Board, the Chartered Banker Institute, the Chartered Institute of Securities and Investment, the Institute of Chartered Secretaries and Administrators, the Financial Reporting Council, TheCityUK, the City Values Forum and senior officials from the City Corporation.

4. Separate discussions have taken place with the chairs of a number of UK banks, the chair-designate of the Financial Conduct Authority, and others. The meetings have also considered the progress made so far by the Chartered Banker Institute and its work on the Professional Standards Board (PSB). This initiative, led by nine UK banks, is designed directly to restore public confidence and trust in the banking industry and promote a culture of professionalism amongst individual bankers.

Objective of the Lord Mayor’s Initiative

5. The objective of the Lord Mayor’s Initiative is to help facilitate an environment in which the whole banking sector can operate with the trust of the public, customers and other stakeholders. The current economic climate is fragile, and the banking sector plays a critical systemic role in fuelling economic growth. A more professional and accountable industry, operating more consistently to publicly recognised standards, will instil greater confidence in all market participants, reinvigorate critical relationships, and play a key role in helping the country to emerge from recession. The City’s contribution to the national economy is well documented and a banking sector which has regained the trust of its stakeholders will optimise the conditions for maintaining the City of London as a place to do business, remaining attractive to global capital markets, attracting inward investment, and creating jobs. Measures taken to increase the professionalism and standing of the industry should also increase the attractiveness of the City as a place to invest.

The Banking Sector

6. The UK banking sector is an umbrella term which encompasses a vast range of activities—UK and overseas, retail and wholesale, simple and complex, ‘teller’ and ‘trader’.

7. The reputation of London as a global financial centre is built at least partly on the range and diversity of its banking activities. The corollary is that the complexity of the sector makes it difficult to introduce a one-size-fits-all solution, a reality which the Lord Mayor’s Initiative has sought to acknowledge as it has conducted its analysis of the work needed to raise standards and restore trust.

City Values Forum

8. The Lord Mayor’s Initiative has acted as the sponsor of a work stream—the City Values Forum—an ambitious programme of change initiatives aimed at tackling the underlying causes of the problems associated with the lack of trust in the banking sector. The appendix provides greater detail in respect of the individual components of the programme. It is intended that the practical outputs of the work stream will play an important part in the overall effort to bring about a change in the way in which companies and individuals operating in the sector do business.

9. Not only have some of the individual projects already started to come to fruition, they have also begun to achieve greater profile, through media reporting. This is an important development because the exercise of restoring trust can only be successful if the significant amount of work being undertaken is brought to public consciousness, allowing stakeholders to see that there is a credible, concerted and coordinated change management programme in place.

Banking Standards Council

10. The banking sector is a generic term which, in reality, refers to a very wide range of business activities. Creating a solution which would be considered fit-for-purpose in all business contexts would not be straightforward, quick or necessarily appropriate.

11. The City of London considers that it is feasible—and more pragmatic—to develop a Banking Standards Council model by focusing initially on UK retail bank operations. There is already a critical mass of activity in this area, and systems in place to drive further progress, as a result of the work of the PSB.

12. Clearly the creation of a Banking Standards Council, focusing on UK retail banking, is an issue of significant importance to everyone involved in the debate on banking standards. In reality, a substantial amount of work had already been undertaken by various parties in and around the area of standards. The City of London’s effort over the last few months—and the focus of the specially-convened meetings—has been on analysing the different stakeholders’ perspectives and contributions, and facilitating and supporting the discussions which are currently taking place.

13. More work needs to be done to settle points of detail, but a critical mass of opinion is coalescing around the concept of what such a body would need to look like to be credible, and able to command confidence with the public, customers and other key constituencies.

14. The current thinking within the City of London is that a Banking Standards Council could have the general responsibility for overseeing a Code of Conduct for the UK retail banking sector, and the development of professional standards, focusing on both the companies and the individuals working within them. The Chair, and a majority of the members, would be independent, with all relevant stakeholder interests represented.

15. The Council could, as necessary, provide a single point of contact for any individual, or organisation, seeking to pursue a complaint and provide, equally, a single point of contact for any individual, or company, covered by the scheme, as well as other stakeholders such as the professional bodies and trade associations. It would need to have an effective communications and marketing programme. The Council would operate best practice in terms of governance, transparency and accountability, with access to the workings of the Council, and its outputs, made possible through a website, publications, consultations processes, periodic open meetings, a formal annual meeting and an annual report.

16. The City of London appreciates that a proposed Banking Standards Council would need to work in close cooperation with a number of key stakeholders for it to be successful in achieving its objectives.

17. In relation to the regulatory environment, for example, the City of London acknowledges that the FCA is a new regulatory body which will need time to establish its modus operandi. It is particularly important that a proposed Banking Standards Council should avoid any risk of duplication of regulatory oversight, leading to the emergence of a ‘three peaks’ model of regulation. Whether a Banking Standards Council would have supervisory, enforcement and disciplinary responsibilities, or any other powers in relation to the regulatory regime, is a matter still to be resolved.

18. Nevertheless, the body would be in a strong position to interact with the FCA, to complement the FCA’s work and to comment on, and even make recommendations concerning, the operation of aspects of the regulatory system, for example in relation to the coverage of the Approved Persons Regime. On that particular point, for example, one issue which remains unresolved at the moment is the need, if any, for the proposed Banking Standards Council to hold a separate Register, and how that would link with those individuals on the Approved Persons Regime, a Regime which should continue.

19. The proposed Banking Standards Council would need to work closely with the banks on both issues of the Code of Conduct, and standards, to ensure maximum alignment and effectiveness. Bearing in mind the risks, and possible unintended consequences, of a one-size-fits-all solution, in some cases it would be better for the Banking Standards Council to recognise the systems already in place inside one firm, while working with another firm, for example, to strengthen its systems.

20. The same principles would apply to working alongside the professional bodies which have already done so much work in the area of codes and standards. The Banking Standards Council should, again, avoid duplication of these bodies’ work, while ensuring that, for example in the case of serious wrongdoing by an individual, at least one, if not both ‘regulatory’ bodies involved—the regulator and the individual’s professional body—took appropriate disciplinary action. This would address one of the key concerns expressed during the Banking Commission’s evidence session on standards that such actions had not been taken even in the most egregious cases of individual misbehaviour.

21. The PSB has, after its first year of operation, made good progress in agreeing work programmes with some of the banks which are its members, and, focusing on this area initially would allow the initiative to achieve momentum, and establish credibility. The practicalities of extending the scheme to other parts of the banking sector, whether wholesale or non-UK could then be considered in more detail.

22. An example of where further work is already being undertaken relates to the operations of foreign banks in the UK. There are arguments on both sides for the inclusion or exclusion of (certain) foreign banks in relation to oversight by a Banking Standards Council. The City of London is working alongside the Association of Foreign Banks (AFB) to conduct a representative survey of its membership to understand how the operations of a Banking Standards Council might fit within the existing regulatory systems and cultures applying to those banks, what standards regimes (if any) apply in their home countries, which matters would need to be addressed in terms of their participation, and the wider public policy issues which might arise. The City of London will wish to update the Banking Commission in due course on the outcome of the survey and discuss the results with the AFB.

23. In summary, a considerable amount of progress has been made in devising a possible Banking Standards Council model. The creation of a Banking Standards Council would send a powerful signal that there is a desire from the sector to restore trust and confidence. While all the considerations relating to the role and responsibilities of the new body have not been resolved, it is encouraging that there is an emerging consensus to continue and complete this work.

APPENDIX
THE CITY VALUES FORUM

The City Values Forum (CVF) was established in 2011 as an informal, voluntary working group to assist each Lord Mayor in his or her year of office, to act as a catalyst for co-operation and to co-ordinate the research, formulation and delivery of a series of work programmes.

The CVF is already working closely with the Chartered Banker: Professional Standards Board, the Chartered Institute for Securities and Investment (CISI), the City HR Association, Cass Business School, the Financial Skills Partnership, the Institute for Business Ethics, TheCityUK, Tomorrow’s Company and a number of City Livery Companies on the following initiatives and several others which are under development.

To date funding has been secured and work commissioned to deliver three initial programmes into the market this year:-

(a)‘Leadership with Integrity’—a programme for new managers across all sectors of the financial services industry currently being developed by Cass Business School. It will be accredited by the Institute for Leadership and Management (part of City & Guilds) and delivered by management training providers and by inclusion in the training programmes delivered by other institutions. The programme which will provide a foundation course in management and leadership will also have a particular focus on the importance of culture, values and integrity and will provide ‘hands on’ experience in the handling of dilemmas. The detailed course programme will be put out to consultation with employers, training providers and others in the April/May of this year with a view to running a pilot programme in the early summer. The aim is to have the course available in the market for a September intake.

(b)‘Performance with Integrity’—a new policy guide and best practice toolkit in performance management is being researched and prepared by a consulting team led by the City HR Association. This will help employers embed values at three crucial stages in the employment and career development process: recruitment, performance appraisal and management development. City firms who are members of the City HR Association are sharing their knowledge and experience freely so that other organisations can benefit. An exposure draft will be produced in April/May of this year for consultation with employers and professional associations and with a view to having this resource available in the market by September.

(c)‘Governing Values’—a practical management policy guide which will help Boards create a ‘clear line of sight’ through their businesses, to ensure that values are observed, delivered and lived. The guide which is being researched and developed by Tomorrow’s Company will signpost best practice in the governance of culture, highlighting the tools available to Boards of directors to assess the processes which integrate values into a business’s day-to-day operations. These will include Investing in Integrity, an evaluation process developed by the Institute for Business Ethics and CISI to assist companies to monitor their performance in this area. The Governing Values guide will go out to a series of consultation meetings in March/April, and will be available to launch in September.

In addition the City Values Forum has a pipeline of three further programmes underway involving seven work streams—all of which are at an advanced planning stage for implementation later in the year, subject to funding.

1 February 2013

Prepared 19th June 2013