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UK Banking Standards Review
03/06/2014

In September 2013, Sir Richard Lambert was asked by the chairmen of several leading UK banks to draw up proposals for a new organisation to raise standards in banking. Now, Insights presents highlights from the final report of the UK Banking Standards Review

For several months Sir Richard Lambert and his team have been hard at work, consulting with stakeholders in the UK banking industry to ensure that a new independent organisation focused on raising standards of competence and behaviour in banking can achieve its maximum potential.

Insights has kept a close eye on the activities of the Banking Standards Review and helped with its efforts by distributing the organisation’s 22-page consultation paper to faculty members of the International Academy of Retail  Banking (IARB) and other distinguished participants in the international banking community. The consultation paper related to treating banking as a profession, with accompanying professional standards of education and ethics; it also solicited feedback on the role and scope of the proposed organisation.

The results of the official consultation process were featured in the April edition of Retail Banking Insights and were the last indication before the publication of this final report of how the industry reacted to the setting up of the proposed organisation and how it felt about banking in the UK as a whole.

It was believed then that if the proposals were to be adopted in the UK, they would no doubt have global consequences and bring about positive change in retail banking and the broader industry. Now, a UK-focused organisation has been deemed most practical.

Speaking on the day of the final report’s launch, Sir Richard said:

My conclusion is that there is a strong case for a collective effort to raise standards of behaviour and competence in the banking sector, and that the best way to deliver this is by setting up a new and independent body to drive the process forward.

“Raising standards of behaviour across this large and complex industry will take time and will require a number of challenges to be overcome.

“But my strong recommendation is that the work should get under way immediately, and that the present momentum should be maintained and accelerated.”

The report comes with nine recommendations which cover the topics of credibility, scope, institutions or individuals, relationship with the regulators, benchmarking, professional standards, training, relationship with existing professional bodies, as well as organisation and cost. There is also a list of boundaries that governs what the organisation will and won’t do, along with a taste of what the future holds for the body and what the immediate next steps are.

The organisation will be referred to as The Banking Standards Review Council (BSRC).

The report commences with a letter to the chairmen of Barclays, HSBC, Lloyds Banking Group, Nationwide, Royal Bank of Scotland, Santander and Standard Chartered, in which Sir Richard introduced the findings of the consultation process and presented an outlook to the report’s patrons.

Although it is the aforementioned institutions that are directly addressed in the letter, Sir Richard has made it clear on the BSRC website that all UK banks and building societies have a collective interest in raising standards of behaviour and competence across the industry.



Chairmen,

You asked me last September to develop plans for a professional body to promote high standards in banking. I am now sending you my recommendations.

In the intervening months, my colleagues and I have interviewed executives in banks and building societies of every shape and size in order to inform our ideas. We have also spoken to Government, regulators, academia, industry, existing providers of qualifications and training, trade associations, and consumer and employee groups. In addition, we have talked to professional bodies in other walks of life to learn how they operate.

I published a consultation paper in February, looking for comment on my initial thoughts. This generated nearly 200 constructive responses, which in turn have significantly shaped the recommendations I am sending you today.

My conclusion is that there is a strong case for a collective effort to raise standards of behaviour and competence in the banking sector, and that the best way to deliver this is by setting up a new and independent body to drive the process forward.

There are big challenges to be overcome. The new organisation will be funded by the banks, but must remain independent of them. It must cover the whole banking industry if it is to be credible, but also recognise that there is very little in common between a small building society and a large investment bank. It must complement rather than confuse the work of the regulator, and it must rely on voluntary support rather than statutory backing for its ideas. I have tried to address these and other issues in the report that follows.

Raising standards of behaviour across this large and complex industry will require determined leadership by you and your colleagues, and is bound to take time. But my strong recommendation is that work should get under way immediately, and that the present momentum should be maintained and accelerated.

The next steps should include setting up an independent panel as soon as possible, in order to appoint the Chairman of the new organisation and approve the Chief Executive. Direct approaches should be made to a wide range of banks and building societies in order to secure their support. A detailed business plan needs to be developed, and the subscription levels for different types of institution must be agreed. Dialogue should continue with the regulators in order to ensure that the new body is aligned with their activities.

I am grateful to you for the free hand you have given me in producing these recommendations. I am happy to do what I can to help in the coming months pending the appointment of the Chairman.

Finally, I would like to recognise the energy and flair of my colleagues in this exercise: Tom Barham of RBS, John Gall of Nationwide, Tom Sleigh of Lloyds Banking Group, and Sabrina Sheridan, who kept the show on the road. I am very grateful to them all.

Sir Richard Lambert


 

What the Banking Standards Review Council will do

The objective of the Banking Standards Review Council will be to contribute to a continuous improvement in the behaviour and competence of all banks and building societies doing business in the UK.

It will act as an independent champion of better banking standards in the UK and be driven by the interests of customers and of the wider group of stakeholders with a concern for the well-being of the British banking system.

The recommendations set out in the final report propose that it will do this by:

  • Requiring participating banks and building societies to commit to a programme of continuous improvement under the headings of culture, competence and customer outcomes, and to report back on their performance to the public every year.
  • Setting standards of good practice. That means identifying activities where voluntary standards would serve the public interest, and working with practitioners and relevant stakeholder groups to come up with agreed procedures. Examples could include whistleblowing protocols, the approach to retail sales incentives, banks’ processes for handling small businesses in distress, or the management of high-frequency trading.
  • Publishing an annual report setting out where progress is being made both by the sector and by individual banks and building societies, and where more needs to be done.
  • Having a meeting once a year with non-executive directors or, in their absence, risk or reputation committee chairs of the larger banks and building societies to discuss the institution’s progress relative to the previous year and to its peers.
  • Working with the industry and its stakeholders to develop a single principles-based code of practice in alignment with the high-level principles now being considered by the regulators.
  • Identifying and encouraging good practice in learning, development and leadership, with a particular focus on behaviour and ethics.
  • Helping the banks to meet the obligations being placed on them by new legislation, such as the Certified Persons regime.
  • Working with the professional bodies already active in the banking industry to increase the value placed on professional qualifications.

What it will not do

  • The BSRC will not act as a lobbyist for the banks and the building societies.
  • It will not absolve the leadership of banks and building societies from their prime role in raising banking standards and it will not attempt to do the work of the regulators.
  • It will not handle customer complaints.


Final BSRC recommendations

Recommendation 1
The Banking Standards Review Council should be established with the aim of contributing to a continuous improvement in the conduct and culture of banks and building societies doing business in the UK and of supporting high standards in the future.

Recommendation 2
The governance, funding and reporting arrangements of the BSRC should underwrite its independence and credibility. It must be transparent and open in all its activities and seek widespread support from the industry.

Recommendation 3
The BSRC should seek to engage with all banks, both wholesale and retail, and building societies doing business in the UK. Its approach should be aspirational and it should aim to make the relevant question not “Why would you support such an organisation?” but “Why wouldn’t you?”

Recommendation 4
The BSRC should engage with banks and building societies, rather than with their individual employees.

Recommendation 5
The BSRC will complement the work of the regulators by focusing its efforts on identifying and championing good practice. It should aim to align its work with theirs and avoid duplication.

Recommendation 6
Banks and building societies will work with the BSRC to raise standards of conduct over time in the ways described above.

Recommendation 7
The BSRC should work with the industry and its wider group of stakeholders to identify specific areas of banking activity where voluntary standard setting would benefit customers and advance the public interest.
The standards it develops should be kept under review, to ensure that
they remain relevant in changing circumstances.

Recommendation 8
The BSRC should work with its different stakeholders to identify and promote good training practice across a wide range of banking activities. Where possible, it should build on existing foundations.

Recommendation 9
The BSRC should support and not duplicate the activities of the professional bodies and should work with them, and with the banks and building societies, to change perceptions of the value of their programmes.

Points of interest

A chairman will be appointed by an independent panel led by Bank of England governor Mark Carney.

Sir Richard has agreed with the banks to take on the role of interim chairman until a permanent chairman is appointed later this year.

The BSRC will comment on progress at both sector level and on individual banks in its annual report. The approach will be more to nudge and bring issues to a bank’s attention, but, if necessary, the new body will not hesitate to make itself unpopular with banks by saying what it thinks about how they are performing.

The cost of running the new organisation will be between £7 million and £10 million each year.

Sir Richard has recommended that the banks provide funding for the initial three years and on a three-year cycle thereafter.

Clifford Chance is currently working on the legal structure of the new body.

A focus on UK operations only
One concern expressed in the consultation responses was that the BSRC might put up barriers to the free movement of international talent in and out of the UK, or to the entry of new competition. The project has been designed to ensure that this will not happen. The BSRC will be engaging with institutions rather than with individual bankers, and will not impose any constraints on the movement of people.

The consultation process has led to one important change from the original proposal. It has been deemed not sensible, as originally suggested, to attempt to cover global staff or the international operations of banks. It is believed that such an approach would throw up risks of conflict with locally applied codes or regulations and with equivalent bodies overseas, and could create technical problems over cross-border issues in relation to data privacy requirements. So, the BSRC’s interest should be limited to the UK operations of banks and building societies. They would, of course, be free to go further if they chose to do so.

Institutions not individuals
The report explains that the consultation brought no clear consensus about whether the BSRC should open its doors to individuals, as opposed to dealing only with their employers: the banks and building societies. Some argued that it was essential that individuals should be included from day one – that banking should be seen as a profession like medicine or the law, in which participants take responsibility for their own professional ethos, and that this should start straight away.
The report clarifies the counter-argument with the following: “Others said it should never happen. One reason given for this view was that such a move could undermine the existing professional membership bodies in the banking sector, and lead to unnecessary duplication. A third group suggested that the question of individual membership was not central to the BSRC’s mission, which was to raise standards in the banking sector. So the issue should be considered at a later date, if at all.”

Not discipline-centric
The job of the BSRC, by contrast, will be to highlight and champion good practice in the UK banking industry. It will be concerned much more with excellence and responsibility than with discipline and it will seek to set voluntary standards in areas where statutory regulation would not work.

Joint statement from the six banks and one building society that commissioned the review:

“The chairmen of Barclays, HSBC, Lloyds Banking Group, Nationwide, RBS, Santander and Standard Chartered welcome the publication of Sir Richard’s final report. It confirms that there is a role for a new Banking Standards Review Council in restoring trust amongst customers and clients. They accept his recommendations and undertake to implement them expeditiously.”

 

Mark Carney, Governor of the Bank of England said:

“I welcome this important industry-led initiative, and am pleased to support the establishment of the BSRC. I encourage all banks that operate in the UK, both domestic and foreign, to support this endeavour. We need a financial system that is safe, fair and acts with integrity. The Bank of England is doing its part to ensure safety and soundness. Integrity, however, cannot be regulated. It must come from within. Only exemplary behaviour can confer the social licence necessary for our banks to be active participants in ensuring that the UK financial system remains a global good and a national asset.

The participation of the International Academy of Retail Banking (IARB) is noted in Appendix D: a list of individuals and organisations that responded publicly to the consultation. Along with individual responses from its faculty members, the IARB offered practical advice on how to treat retail banking as a profession and how to successfully train and assess candidates.  

The full report can be viewed here:

www.bankingstandardsreview.org.uk/bsrc-proposals/

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