On October 17, 2012, the British Bankers Association (BBA) held its annual conference for the banking and financial services sector, and the theme of the conference was Restoring Trust.
The new chief executive of the BBA, Anthony Browne, came into office shortly after the Libor scandal erupted this summer, and that event influenced his perspective on industry priorities. In his welcome address, Browne explained his point of view,
I chose the overall theme Restoring Trust because it is quite simply the biggest challenge facing the industry.
One of the joys of this job is pollsters [who] keep sending me reports about what the public thinks of us. It is not pleasant reading.
And the reaction to my appointment has been interesting. My Mum said she was shocked. I don’t know why. I’d been a journalist and a politician. Surely banking was a step up?
Like all conferences, the day was filled with speeches, which are not the best tools for building trust. However, each speaker was very purposeful in his or her approach to this topic. Almost uniformly, speakers talked about a British reputation for credibility, and many cast themselves as stewards of that reputation, responsible for its care until the next generation comes along.
Additionally, the speakers offered multi-dimensional solutions to restore Britain’s reputation in the global banking community, and all of their solutions included some form of regulation and punishment for destructive behavior. In their perspective, behavior can be improved through the establishment and enforcement of a higher moral code, which is something they recall from their youth.
Finally, there is a remarkably lofty, historical, and visionary aspect to some of their messages. Reflecting back on England’s leadership role in the economies of prior centuries, these bankers expressed a desire to set a new moral tone for the global banking community.
Following are selections from three speeches. Instead of editorializing this content, I decided to let their words stand for themselves. Links to the full speeches are at the end.
1) Rt Hon Greg Clark MP, Financial Secretary to the Treasury
Restoring the Bonds of Trust
One of my abiding memories from childhood was on a trip from Middlesbrough to London when I went to see the Stock Exchange. Looking down on the trading floor – this was before Big Bang – I was struck by the force of that great motto Dictum meum pactum ‐ my word is my bond.
Trust remains the essential condition for the functioning, let alone the prosperity, of the financial services industry today. Ordinary working people rely on you to help them negotiate every stage of their lives. Businesses depend on you for their very growth and survival.
In a world where trust is in retreat, it is incumbent on this country to provide a haven of confidence and security. But this won’t happen unless we merit higher standards of trust than apply elsewhere
Trust is not secured by any single contributory factor, but by the interaction of several, including effective regulation; meaningful sanctions; clarity of structures; well‐aligned incentives between principal and agent and, most of all, an all‐pervading culture of integrity.
 The system of regulation that we’ve had for the last decade was found wanting. It missed the risks to the financial system as a whole by concentrating on the individual sources of risk in isolation. . .
Second, sanctions. If someone breaks the law, they should be punished. When the crime is serious, they should be locked up. This should be as true for criminals who steal through financial manipulation as it is for those who break‐and‐enter. Indeed, just as sentences handed down to those who were convicted in last year’s riots reflected their contribution to the breakdown in the confidence and security enjoyed by ordinary working people, so must a similar premium apply to those crimes which destroy trust that so many people depend on.
 Simplicity goes hand in hand with transparency. The more people who see and understand what is going on, the more they can have confidence that they are not being bilked.
Fourth, incentives. – 80% of bonuses must be paid in shares
 culture It outrages me that the millions of people who have lived and breathed those values throughout long and devoted careers should have to endure the injustice of the damage to their reputation by being linked inadvertently to a reckless few.
2) Bill Michael, KPMG
The Future of Banking: Challenges and Opportunities
You cannot regulate virtue.
I firmly believe what is required is a ground breaking shift in culture and behaviour. And it is up to banks to lead by example. It’s time to turn rhetoric into reality.
It’s time for a new Banker’s code, one that is relevant for today; A Code that is not a substitute for regulation, but works alongside it; A code that can be used to evidence change and where there is consequence.
I think a Code needs to enshrine three core principles.
- First, act in the best interest of the customer.
- Second, put reputation before profits.
- Third, live by the principle of prudence.
In banking, as in life, reputation is everything. As we all know it takes years to build a reputation but moments to ruin it. Now all banks have had reputation risk committees for years. However, they didn’t work because reputation is not about adhering to rules alone.
We need to rediscover prudence. Prudence is about decision‐making with a degree of circumspection
At a practical level a Banker’s Code could:
- create a common language to discuss what our banking culture is seeking to achieve.
- articulate clear measures, making it easier for our peers and public to hold us to account.
- frame the behaviours that should be rewarded through incentives structures.
But it’s not just banks that need to change; we all have our part to play – shareholders, customers and regulators.
Shareholders need to behave more like owners.
Next, the bank customer. We as customers have to change our behaviours by taking greater responsibility for our own balance sheets. It’s about financial literacy and personal accountability.
I would like to talk about the importance of regulators in helping change culture and behaviour. It is five years since the financial crisis and yet we are still working out the rules with no end in sight.
It’s time to make a public commitment to govern and manage UK financial institutions through a set of guiding principles. It wouldn’t be the first time that an idea developed in this country was adopted by others. We all have an important part to play and we must all have the humility to work together and achieve a better outcome for society as a whole.
3) Steven Maijoor
Restoring investors’ trust in Europe’s markets
As we are all aware, trust is the cornerstone of financial markets. Those of you who have an interest in the history of financial markets know very well that trust lies at the root of the development of our securities markets. Public companies and stock markets, which have been so important for the development of our economies and the generation of our wealth, cannot exist without trust. In essence, the level of trust needs to be at such a high level that savers are willing to transfer some of their carefully saved income to another person, who they do not know personally, and who will use it to undertake a productive activity. Considering the many potential risks involved, it is remarkable that we have been able to achieve the level of trust needed for the functioning of large and complex financial markets.
Investor trust or investor protection is not a sufficient condition on its own to support well-functioning securities markets. There are at least two other elements which are also needed and which are central to ESMA’s activities: financial stability and a single rule book for the European Union.
It is my hope that the combined efforts of regulators, in the shape of ESMA and national authorities such as the FSA, and a financial industry seeking to rebuild relations with their clients will ultimately restore investors’ trust in our financial markets.
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