New global standards to strengthen bank ethics are needed
The professionalism and ethics of individual bankers is too important to be left to each bank on its own: the industry as a whole needs to come together to set new standards, says Simon Thompson.
There is a great deal of talk about global standards for banks as institutions – but what about global standards for bankers as individuals? The post-crisis regulatory focus on banking’s financial capital has been understandable. But what is still missing is an equally vigorous pursuit of global standards to enhance its human capital to enhance and sustain banking’s essential professionalism.
I would like to see global regulators and other bodies such as the Bank for International Settlements, the Financial Stability Board and the G30 promoting and supporting the development of global standards of culture and behaviour to enrich our industry’s human capital, alongside the standards being imposed to strengthen banking’s financial capital. We should strive for international consensus, founded on a genuine, global commitment, in which all banks and bankers put principles of stewardship, prudence and professionalism first.
Wrong focus?
Since the crisis, regulators have focused on capital reform – making banks safer by increasing capital buffers, banning high-risk activities, resolving crises without recourse to the taxpayer. The emphasis has been on preventative penalties. Banks have faced huge fines for involvement in numerous scandals: 20 global banks, it has been estimated, have paid £152bn ($220.5bn) in fines and compensation since the 2008 crisis.
UK and US regulators now acknowledge the serious effect on banks’ capital of these penalties for poor operating culture and deficient behaviours. Payment protection insurance misadventures in the UK alone have cost banks £27bn; in the US, some $200bn has been forfeited in penalties – money that could and should have strengthened balance sheets and business lending.
The structural reforms precipitated by such malpractices have been necessary – but they are not sufficient. They overlook the degree to which public trust in banking rests as critically on human capital as on financial rectitude. And it is human capital that underwrites the need for global standards of professionalism.
First, there is the asymmetry of information between banker and customer. Recent crises demonstrated in retail and wholesale banking, in multiple jurisdictions, that bankers have access to more information than even the best-informed customers and counterparties.
Second, despite local differences there is a common body of knowledge and skill required in banking, covering credit, risk and regulation.
Finally, there is a clear public interest in banking’s social purpose and utility functions – and, not least, in avoiding further taxpayer support. It must follow that it is surely essential for the industry to embed professional norms to provide a defence against future cultural misadventures and crises.
Steps forward
Some good work is being done. In the UK, this is being done with the encouragement of regulators and industry bodies through the Chartered Banker Professional Standards Board (CB:PSB). Pre-dating the Libor scandal, the CB:PSB has developed an industry-wide Chartered Banker Code, supported by detailed professional standards of conduct and expertise. Covering some 75% of the UK’s banking workforce, its Foundation Standard for Professional Bankers has so far been achieved by more than 120,000 UK bankers.
In Europe, the European Bank Training Network last year launched an international education standard to help banking institutes develop and put into effect professional development programmes sharing a common foundation. And internationally, an emerging alliance of banking institutes is developing voluntary global standards, mostly around education. International regulators, though, could do more to encourage and support the development of global standards of ethical and professional competence. A global approach has worked elsewhere – most notably, post-Enron by the accountancy profession.
But, despite emerging interest, there remains a dispiriting consensus to leave the drafting of banking ethics and professionalism wholly to the banks themselves. The G30’s otherwise thoughtful recent report on banking culture and leadership was quite wrong in meekly agreeing that every bank should deal with culture individually.
A broader brush
Today’s bank-by-bank approach simply will not deliver the sustainable, ethical progress needed for institutions, and the banking industry overall, to rebuild our reputations. Rather, we need to focus on setting ethical standards and professional norms at an international level. This is managed perfectly well in other professions: in accounting, law, medicine and other arenas, professionals subscribe to a broad ethical culture that goes beyond the corporate standards set by each firm or practice. There’s a loyalty to a higher purpose inherent in the very idea of being part of a profession.
Let us not be shy. As professionals, bankers share a positive social purpose to accomplish more than simply maximising shareholder returns. We share a responsibility to set the ethical tone for economic life. At a time when ethics in business and public life are under scrutiny, following serious lapses at organisations as diverse as hospitals, car manufacturers and sports associations, let banking lead, not follow.
Simon Thompson is chief executive of the Chartered Banker Institute.
