Why Britain’s new banking standards body needs your help
REGULATORS can punish wrongdoing, but they find it much harder to legislate for what constitutes good behaviour. If they try to do so, they are likely to end up with massive rule books – and fail to meet their objectives. Rather than taking responsibility for their own actions and exercising their judgement, people will tend to focus on the letter rather than the spirit of what is intended. If it’s not written down, it’s seen as being permitted.
That, in a paragraph, is the argument for a new industry standards body to cover banks and building societies in the UK. Britain’s biggest banks and its largest building society are supporting this initiative, and I have now put out a consultation paper to help shape the final proposals.
At this early stage, however, it’s important to be clear what this project is – and is not – about. It’s not a substitute for strong and determined leadership from the banks themselves. If they don’t get a grip on the shoddy practices and bad incentives that have plagued their businesses in the past decade, this new body will be a waste of space.
It’s also not an effort to override the regulators. It’s true that, if the new organisation is successful, there may be less of a need for yet more rules in the future. But in the meantime, it will have to align itself with the statutory authorities that have been established by Parliament, or else again it will fail.
Finally, this is not about bearing down on bank bonuses. The new body must take an active interest in the structure of incentives that shape bankers’ behaviour, whether on the retail counter or the foreign exchange trading desk. But the actual level of compensation must be the responsibility of the business leaders, and of the owners – the shareholders, or the members in the case of building societies.
So what is this new body actually aiming to do? Its focus must be on championing the three Cs – conduct, capability and customers.
Banks which agree to be part of the process will commit themselves to a programme of continuous improvement in their standards of behaviour, and report back publicly on their progress each year. They will be asked to show how far their code of conduct is incorporated in the daily operations of their business, and is understood and followed by everyone. They will report on issues like whistleblowing, diversity and discipline, and on the progress employees are making in terms of training and development.
Perhaps most important of all, the spotlight will also shine on their handling of customer complaints, on customer feedback more generally, and on relationships with the regulators. The new organisation will assess the quality of these reports, and help the banks and building societies to understand how they stack up against their competitors.
In short, the job will be much more about championing excellence than about disciplining bad behaviour.
People are understandably cynical. It would be surprising if they weren’t, given everything that has happened in the past years and the fact that the new organisation will be funded by the banks themselves.
That’s why it will need a governance structure that guarantees its independence from the banks, so that it doesn’t dance to their tune. It will have to be transparent and open in everything that it does. And in order to be credible, it will require widespread support from those involved in the banking business in this country – from small building societies and banking startups, right through to the industry giants and the international investment banks that employ many thousands of people in the City.
Other industries – ranging from advertising to natural resources – have taken similar steps to address big challenges in a collective and voluntary fashion. Journalists themselves have an industry-wide code of conduct, although it’s true that some take it more seriously than others. This approach, supported by strong industry leadership and sound regulation, can help to make a difference over time. But I’m going to need help to come up with the right answers. So please take a look at the consultation paper, found at www.bankingstandardsreview.org.uk, and let me know what you think.
Sir Richard Lambert is head of the UK’s Banking Standards Review, a former director general of the Confederation of British Industry, and a former member of the Bank of England’s Monetary Policy Committee.