UK: Banking Standards Review

Sir Richard Lambert has today published a report with his recommendations on plans for a professional body, to be known as the Banking Standards Review Council (BSRC), to contribute to a continuous improvement in the behaviour and competence of all banks and building societies doing business in the UK.    This report seeks to address various challenges which will need to be overcome, and proposes as immediate next steps the setting up of an independent panel, which the Governor of the Bank of England has agreed to chair, with a view to the appointment of the Chairman of the new body, and to approve the Chief Executive.  The support of a wide range of banks and building societies will be sought, a detailed business plan developed, and subscription levels for different types of institutions agreed. 

Background

In September last year, in response to a challenge thrown down by the Parliamentary Commission on Banking Standards (see paras. 89-96), the chairs of Britain’s six largest banks and its biggest building society mandated Sir Richard Lambert to undertake a project aimed at restoring public confidence in banking through the creation of a new organisation to help raise standards of competence and behaviour among bankers doing business in the UK.   Following discussions with a number of different stakeholders, he published a consultation paper in February 20104 outlining initial thoughts on the new organisation.  The paper generated nearly 200 responses, revealing widespread support for such an organisation.  Today's report recommends that a Banking Standards Review Council (BSRC) be established, and outlines what this new body would look like.

Main recommendations for the BSRC:

1. Its aim should be to contribute 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
2. Its independence and credibility will be provided through its governance, funding and reporting arrangements, its transparency and openness in all its activities, and widespread support from the industry
   • Governing Council of 12 including the chairman (a minority of bankers)
   • acting in the public interest
   • Executive management team running operations below
   • Funding on a 3 year cycle
   • Five yearly independent assessment of its own performance
   • Encourage the Treasury Select Committee to challenge its work on a regular basis
   • Transparency through publication of industry wide annual report
   • Consistent Communications strategy
   • Strength and breadth of the membership
3. It should seek to engage with all banks, both wholesale and retail, and building societies doing business in the UK, taking an aspirational approach, asking “why wouldn't you support such an organisation?”
4. It should engage with banks and building societies, rather than with their individual employees.
5. It will focus its efforts on identifying and championing good practice, aiming to complement and align its work with that of the regulators, avoiding duplication.
6. Banks and building societies will work with the BSRC to raise standards of conduct over time, through:
   • Self-assessment framework laid out by BRSC
   • Assessment of performance of each bank in respect of culture, staff competence and consumer outcomes (annually for large banks)
     • Use of quantitative and qualitative judgments
     • Internal bank reports, surveys and interviews, customer feedback and complaints, regulatory interventions, consumer surveys, BSRC surveys
   • Publication of the assessment
   • Annual meeting with independent non-executives or Chair Risk/Reputation Committee
7. It 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.
   • Comply or explain formula for participating banks
   • Keep the standards it develops under review, to ensure that they remain relevant in changing circumstances
   • Initial suggestions for standards include:
     • Across all segments of the industry
       • effective processes to encourage employees at all levels to challenge poor behaviour and report any concerns up the management chain
       • whistleblowing procedures
       • fair and effective complaints resolution mechanisms
       • good staff values, incentives and behaviours
       • good practice in the development of ethical judgment in the workplace.
     • Retail:
       • the approach to sales incentives
       • treating clients with respect, for example by rewarding rather than punishing their loyalty
       • a transparent approach to fees
     • SMEs:
       • processes for handling small businesses in distress
       • clear feedback on lending decisions
     • Wholesale:
       • bonus clawback procedures
       • transparent index, benchmark, and price provision mechanisms
       • governance of behaviour in general
       • reasonable tests of client readiness to transact complex products; the management of high-frequency trading.
8. It should work with its different stakeholders to identify and promote good training practice across a wide range of banking activities, where possible, building on existing foundations.
9. It 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.

Timetable:

 Next few weeks

• The seven sponsoring institutions will need to establish the Appointments Panel and get a process for selecting the Chairman under way.
• The legal structure of the BSRC will be defined in greater detail, along with the roles and responsibilities of the Appointments Panel, the Council and the Chief Executive.

Over the summer

• Preliminary approaches will be made to other banks and building societies to seek their support in principle for the BSRC.
• A transitional team including bank secondees and, perhaps, professional services consultants will start working on the organisational design of the new body, and securing the appropriate infrastructure.

Q4 2014

• The new organisation will start to take shape, with the recruitment under way of a Chief Executive and the first of the Council members.
• A detailed business plan should be delivered.
• Early priorities include the need to:
  • agree with the regulators about how best to align the BSRC’s work with theirs, and to design a high-level code of practice for the industry.
  • develop a communications strategy, and design the branding that will enable banks and building societies that sign up for this project to differentiate themselves from any that do not.
  • work with the professional bodies already active in banking on ways to add value to professional qualifications.
  • start developing the framework and capability for assessing individual banks and building societies.
  • establish practitioner panels with a view to identifying where standard setting would be most appropriate.

2015

• The BSRC will aim to publish a full report on the state of banking standards and good practice, setting out its priorities for the following 12 months
• The BSRC will also start identifying and publishing examples of good practice in the industry, and begin to work on its priority areas for standard setting.

2016

• First full annual report, covering the performance of the sector and of individual banks and building societies.