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Bankers: a breed apart?

18 February 13

Professional standards are coming to the world of banking. Will bankers become more like solicitors?

by Sara Scott

As solicitors, we are used to professional standards. They are part of our DNA – they underpin the professionalism for which the legal profession is known. We’re used to being individually approved and registered, and we know that we’ll be disciplined if we breach the standards.

Things are very different in the world of banking. Professional bodies such as the Chartered Institute of Bankers offer banking qualifications, but these are not compulsory. Some 156,000 UK bankers are required because of their role to be registered and approved as “approved persons” by the Financial Services Authority, and there are ethical rules they must comply with (not unlike solicitors). However the vast majority of bank employees are not required to be approved persons, including some of the individuals involved in the alleged manipulation of LIBOR. There is no universal set of professional standards which applies to them.

This is all about to change. Professional banking standards are now being called for. The Parliamentary Commission on Banking Standards has been set up in Westminster to look at this and other banking issues. It is currently busy collecting evidence from bankers, industry bodies, consumer groups, and the public at large.

Last month, the British Bankers’ Association (BBA), the trade body for UK banks, made a written submission to the Commission. This sets out a range of possible options to improve standards of banking practice and clamp down on rogue bankers and bad practice. It proposes these three key steps.

Step 1: Strengthen the existing regime

The industry would work with the new financial services regulator, the Financial Conduct Authority (FCA), to toughen up standards. The approved persons regime could be expanded to cover all bank staff who are involved in customer-facing activity and significant wholesale market transactions or dealing. The regulator could also set more explicit training and competency requirements (in the way it already sets mandatory qualification requirements, as part of the Retail Distribution Review, for staff who sell investment products). This could include a requirement for CPD, similar to the one that exists for Scottish solicitors.

This makes a great deal of sense, particularly the individual accountability which comes with being an approved person. However, the additional administrative costs for the regulator and the banks could be considerable.

Step 2: A “bottom-up” approach, focused on professional standards

This would focus primarily on the individuals employed in the banking industry. The independent oversight and co-ordination of professionalism and training for bankers would be improved by a new Professional Standards Board or the FCA taking the lead on setting standards. A broader register of bankers could be created, and there would need to be disciplinary powers and a way of striking off or blacklisting people.

As we all know, this is an approach which works well in the legal profession. It seems both achievable and desirable. However, it would not be effective if the banks themselves operate a culture that works against these standards. It would not be enough on its own.

Step 3: A “top-down” approach, focused on a code

To change culture, the BBA submission proposes a third step of a more “top-down” approach, where a new code of conduct with ethical principles is applied universally across all bank staff. The code would cover expectations on boards, senior management, controls, systems, remuneration structures and individuals. Banks’ boards and senior management would commit to embedding the code in systems, controls and staff incentives. To provide transparency and a further incentive to comply, banks would have to report publicly on how they implement, monitor and report on the code, as well as any breaches.

The submission proposes that responsibility for preparing, overseeing and monitoring the code sits either with the FCA or a new, independent Banking Standards Review Council. This Council might need a statutory footing. It could be separate to the Professional Standards Board from step 2, or be one and the same organisation.

I think a “top-down” code would be worthwhile, but am less convinced about creating a new body to monitor it – that would surely just complicate the already labyrinthine UK banking regulatory landscape.

The ball is now in the Parliamentary Commission’s court. It will produce a report in the spring recommending change to improve professionalism in banking. Those recommendations could include some or all of the three-step industry proposals. Some combination of professional standards, training requirements, individual registration, “top-down” rules and enforcement certainly seems inevitable.

So will bankers become more like solicitors? I think the answer is going to be yes, and this can only be a good thing to restore much-needed trust in the banking industry.

Sara Scott, senior risk manager, RBS Group
All views are the author's own
To follow Sara on Twitter use @SaraNoelScott
To follow this development see www.parliament.uk/bankingstandards

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