Banking StandardsLetter from Jim Lindsay, President, Chartered Banker Institute
As President of the Chartered Banker Institute, I represent nearly 12,000 “ordinary” retail and business bankers who have made, over the years, a personal commitment to gaining professional qualifications and supporting others who want to make similar commitments. For most of us, this has been a very significant undertaking in terms of time and expense, when professional qualifications and membership have not been supported by most employers nor encouraged by regulators. Until the end of last year I was Chief Executive Officer of Airdrie Savings Bank, a bank that, I believe, represents the kind of community banking we need more of in this country. I should make it clear that I am not, in any sense, a representative of the banking industry more widely.
Following my colleague Simon Thompson’s recent appearance before the Parliamentary Commission on Banking Standards, I am writing to provide you, and the other members of the Commission, with further information on the Chartered Banker Institute’s Rules and Regulations, and, in particular, the situation regarding Mr Fred Goodwin’s continued membership. Not only is Mr. Goodwin’s continued membership of the Institute, in my view, a matter of very considerable concern to the great majority of our members, it is a legitimate matter of public interest and concern and I acknowledge that it is entirely appropriate that the Commission should question why he remains a member of the Institute.
I would also like to take this opportunity to bring to your attention some of the wider implications for the future regulation of individuals working in the banking industry, and our proposals as to how this may be improved, as I agree with you that the current state of affairs is unsatisfactory, and a fresh start is needed.
1. The Chartered Banker Institute
1.1 The Institute is established by Royal Charter and the Privy Council has approved the Institute’s Rules relating to monitoring and sanctioning members. Further approval from the Privy Council is required for any changes to these. As an FSA Accredited Body (which relates to the issuing of Statements of Professional Standing for Retail Investment Advisers), the Institute’s Rules have also been approved by the FSA, who oversee the monitoring and discipline of relevant members. In practice, the same Rules apply to all members.
1.2 The Institute is also subject, as are other professional bodies in the UK, to a growing body of case law based on the application of Article 6 of the European Convention for the Protection of Human Rights and Fundamental Freedoms, most recently Kaur v Ilex (2011), which means we would be subject to legal challenge (likely to be successful, as I detail below), should my Council colleagues and I simply expel an individual from membership, without following due process.
1.3 Last year the Institute removed from our register more than 70 individuals who failed to comply with our Continuing Professional Development (CPD) requirement. In addition, sanctions were imposed on two students who were found to have breached our Examination Regulations, and, following the establishment of Disciplinary Committees, two members who had been investigated and sanctioned by regulators resigned, and will not be re-admitted to membership in the unlikely event they chose to re-apply. The Institute only has jurisdiction over current members, and it a member resigns we are unable to take the disciplinary process forward.
1.4 As you will be aware, all individuals have a right “to a fair... hearing by an independent and impartial tribunal” conferred by Article 6 of the European Convention tor the Protection of Human Rights and Fundamental Freedoms (1953). This includes professional disciplinary tribunals of the kind operated by the Institute and other UK professional bodies. There have been a growing number of cases in recent years of individuals succeeding in overturning the decisions of professional disciplinary tribunals via appeals based on Article 6, where this right has not been respected, which has led, together with the need for independent professional regulation to replace self-regulation, to the development of statutory, independent, quasi-judicial disciplinary regimes in many professions, of which good examples include the General Medical Council, General Teaching Councils, Chartered Accountancy bodies, and the Solicitors’ Regulatory Authority. These bodies, and others, have legal power and are able to conduct quasi-judicial disciplinary hearings that are far removed from the straightforward hearings conducted by professional bodies in the past.
1.5 The key distinction between such bodies and the Chartered Banker Institute (and other professional bodies supporting bankers in the UK, such as the Chartered Institute of Securities and Investments) is that they are statutory bodies, or have some form of statutory underpinning, with legal powers to investigate individuals and operate disciplinary systems that are compatible with the protections conferred by the European Convention. As statutory bodies, they are able to bear the high costs of operating lengthy, quasi-judicial adjudication and sanctioning procedures as they are supported by industry levies and/or statutory membership. In banking, the FSA is the independent regulator investigating conduct matters relating to individuals on the FSA Register (encompassing some 38,000 individuals in banking), not the Chartered Banker Institute.
2. Mr. Goodwin’s Membership of the Chartered Banker Institute
2.1 Mr Goodwin, at the time (and remaining) a qualified Chartered Accountant, was made a Fellow of the Chartered Institute of Bankers in Scotland in the mid-1990s, whilst Deputy Chief Executive at Clydesdale Bank.
2.2 In 1997 Mr. Goodwin was nominated by Clydesdale Bank to be President of the Institute, for a two-year term. At that time the Institute Presidency rotated between the four main Scottish Banks who nominated a candidate in rotation. In 1999 he stepped down as President and played no further active role in the Institute.
2.3 The fact that Mr Goodwin remains a Fellow is clear from our register and has been well reported in the press. You may not be aware, however, that Mr. Goodwin appears to be a Fellow of at least one further organization which has given evidence to you in public session recently, as a search of the register of Chartered Accountants will show.
2.4 Following the collapse of the Royal Bank of Scotland (RBS), my Council colleagues and I (at the time, I was a Vice-President of the Institute) debated what action we could and should take against Mr. Goodwin. As you might imagine, we had received heated correspondence from members asking what action we were planning to take (including from current and former staff at RBS), and there was considerable media interest at the time too. Following what I can assure you was very considerable debate and discussion, and after seeking legal advice and consulting with other professional bodies, Council agreed in 2009 that it had no alternative but to continue to follow the Institute’s Rules and Regulations, and to apply them to Mr. Goodwin in the same way as they would be applied to any other individual.
2.5 In investigating the conduct of Mr. Goodwin, and, should they arise, other similar high-profile cases, it is not possible for a body with no statutory investigatory powers, such as the Institute, to ensure a fair hearing as required by the European Convention, for several reasons, most notably our inability to secure evidence that would ·be acceptable to a Court of Law. Furthermore, in a case such as Mr. Goodwin’s, where the FSA, as the statutory regulator, has investigated and not censured or sanctioned him, it would be impossible for us to reach a different conclusion without this being successfully challenged in court. To put it simply, if Mr. Goodwin has not been judged to have breached the FSA’s Principles for Approved Persons (APER), to which the Institute’s Code of Conduct has been mapped, he could not be judged by the Institute to have breached our Code of Conduct. Mr. Goodwin also remains on the Register of Chartered Accountants.
2.6 Clearly, the current situation is unsatisfactory to you and your Commission colleagues, and to the public at large. In the event that a legal or regulatory sanction is imposed on Mr. Goodwin, or indeed any other member of the Institute, you can be assured we will act as quickly as we can to ensure any such individual is removed from our register, as we have done with other individuals who have been censured or sanctioned.
3. Other High-Profile Members
3.1 It was suggested during the evidence session that there must be many more senior individuals implicated in the collapse of RBS and Bank of Scotland who remained members of the Institute. This is not the case, as can be seen from our publicly available membership register. Two high-profile individuals (Johnny Cameron and Peter Cummings) were members of the Institute but, following investigation and sanctions imposed by the Financial Services Authority (FSA), were removed from our register of members.
3.2 Most senior UK bankers are not, unfortunately, professionally qualified nor members of a relevant professional body, including our own—something we would like to see change, provided they are also subject to a regulatory regime which means they can be effectively “struck off” following investigation.
4. Monitoring and Disciplinary Powers
4.1 I hope you will understand, therefore, why, in investigating conduct matters such as this, the Institute can and does rely on investigations and sanctions imposed by the courts, or by relevant, competent regulators, primarily the FSA, but also including others such as the accountancy bodies, in cases where an individual is a member of such a body. I hope you will also understand why I cannot agree with the suggestion that we should take action against a member based on media reports and public opinion alone—in my view that would be an unprofessional approach and wholly inconsistent with the standards expected of a body such as the Institute to deal with such matters in an objective and dispassionate manner. Nor can I agree with the suggestion that, in the case of Mr Goodwin, we simply meet with him and ask him to leave. This would prejudice any future hearing that took place, and would also be an example of exactly the kind of “sweeping under the carpet” that has no place in a modern, professional, regulatory system.
5. The Way Forward
5.1 Clearly, there is a need for the Commission to develop proposals and make recommendations to ensure that a strong professional culture in banking is developed, supported by widely-applied professional standards and a professional regulatory regime where bankers who do not meet the standards required can be effectively monitored, investigated and, where need be, struck off.
5.2 The members of the Chartered Banker Institute want to see this too. As Mr. Thompson stated, the Institute has tried to bring the issue of culture and standards in banking to the attention of regulators and policy-makers, as well as to senior bankers, for many years. Most recently, you will recall the evidence we submitted on this subject to the Treasury Select Committee on Financial Regulation in September 2010, and we submitted similar evidence urging regulators to look at standards and culture to the Independent Commission on Banking. We publicly supported the Future of Banking Commission’s report, and have consistently, over at least the past 10 years, sought to persuade the FSA in particular of the need to develop and embed higher professional standards in banking, with little support until recently.
5.3 As a number of submissions to the Commission have made clear, the Institute took the initiative in 2008 to seek support for and establish a professional standards board for bankers, the Chartered Banker Professional Standards Board (CB:PSB). The Code of Conduct developed by the CB:PSB has been subscribed to by banks accounting for 75% of UK banking employees, and 70,000 individuals will have met the CB:PSB’s Foundation Standard for Professional Bankers by July 2013. The CB:PSB has considered and resolved many of the key issues currently under discussion, including:
How can a Code be implemented and enforced?
To whom should professional standards apply?
How can professional standards be successfully implemented, monitored and enforced?
How can customers and other stakeholders be involved in the standards-setting and monitoring process?
I would urge you and your colleagues to look closely at the CB:PSB’s work to date, therefore. It is unique in that it is not just talking about culture and standards; it is actually implementing professional standards in banking.
5.4 The Institute and CB:PSB will, in the near future, submit further evidence to the Commission, setting out in greater detail our views on the issues above, building on proposals from the BBA, CB:PSB and others. In brief, however, we believe that:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
I hope you will find this submission on behalf of the Chartered Banker Institute helpful. My colleagues and I are happy to provide further information should you require this.
25 January 2013