Summary of the IBDE’s  2nd International Forum on Responsible Banking and Finance

Over 170 participants attended the 2nd International Forum on Responsible Banking and Finance organised, on 24 June, by the International Business and Diplomatic Exchange (IBDE) at Cass Business School, in London.

Key speakers included:

  • Andrew Bester, CEO of Commercial Banking at Lloyds Banking Group;
  • Sharon Bowles MEP, European Parliament’s Chair of the Economic and Monetary Affairs Committee;
  • Anthony Browne, Chief Executive of British Bankers Association;
  • David Craig, President of Financial & Risk at Thomson Reuters;
  • Chris Cummings, Chief Executive, TheCityUK;
  • Iain Cummings, Partner at KPMG;
  • Ludovic De Montille, UK Chairman of BNP Paribas Group;
  • Simon Gleeson, Partner at Clifford Chance;
  • Steven Haberman, Dean of Cass Business School;
  • Peter Hahn, Lecturer at Cass Business School;
  • Sir Thomas Harris, Vice Chairman, Asia, at Standard Chartered Bank;
  • H.E. Asta Skaisgiryte Liauskiene, Ambassador of Lithuania to the UK;
  • Andy Love MP, Member of the Parliamentary Commission on Banking Standards;
  • Brooke Masters, Chief Regulation Correspondent of the Financial Times;
  • John McFarlane, Chairman of Aviva;
  • Mark Yallop, UK CEO of UBS Group;
  • Rudi Guraziu, Chief Executive of IBDE.

The conference was divided into three sessions, the opening session exploring the Lithuanian EU Presidency priorities, the first session on responsible banking and finance and the way forward, and the second examining the subject of best practices in banking and corporate governance. Inevitably, these two latter areas are not independent and the discussion switched between the two throughout the conference. As well as from the main speakers, there were also some challenging questions raised from the floor.

The second forum in this series developed some interesting questions to be examined further in future forums as well as across the financial sector at large. The key word throughout the event was “customer”, popping up regularly during both panels.

Opening session

In his welcoming remarks Professor Haberman, emphasised the importance of responsible banking and finance and expressed delight that his school was playing host.

Rudi Guraziu, in his introduction of the Forum put forward IBDE’s commitments in supporting the debate on responsible banking and good governance. Despite the fact that the banking role in the financial crisis was not geographically universal it is clear that in the West the banking industry has not only been involved but has actually been the cause of the crisis as well as in the brake down of trust. That being said, the vast majority of the banking professionals are responsible people working very hard. He noted that other stakeholders including politicians and regulators do bear a significant burden for this loss of trust. Therefore there needs to be an active constructive engagement between the industry and politicians. The first Forum discussed some of the failings in banking standards and ethics and it seems that both the industry and policymakers are determined to address these failings and improve the banking culture. He went on to say that these forums are indicative of a genuine reforming spirit that is swiping through the banking industry, and that IBDE will strive to make a modest contribution to this debate.

In her opening speech Ambassador of Lithuania to the UK, H.E. Asta Skaisgiryte Liauskiene (click to download PDF), presented the Lithuanian priorities for the EU Presidency priorities particularly ensuring economic and financial stability of the Eurozone and the whole European Union as well as in growing and strengthening trust of the European financial institutions. The Ambassador emphasised that issues related to creation of the EU banking union, regulation of the insurance market, markets in financial instruments directive, fight against money laundering will be key priorities during the Lithuanian Presidency.

Session one

Chaired by Peter Hahn the first session began with an excellent keynote speech delivered by Sharon Bowles MEP. The phrase “duty of care” stood out in Sharon Bowles’s speech. In other words, if banking is so crucial to the health and well-being of society that it requires a rescue from the public purse, then perhaps it needs the kind of supervision and professional qualifications required of other disciplines such as health care.

John McFarlane continued with the duty of care theme, asserting that an enforceable code of responsible practice in all customer relationships is key. He stressed a crucial point with regard to “cycle management” as a part of regulation in the real economy.

Ludovic De Montille mentioned the culpability of the banks in what happened during the financial and economic crisis and stressed the role of the banks in the recovery of the economy. He noted that we need i) a more secure banking system, ii) banks that will effectively finance the so called real economy and iii) banks that are managed with integrity. These are hugely important in putting economic growth back on track: Banks have a crucial part to play in this. There is a real need to rebuild confidence between international regulators. He went on to say that it would be wrong to automatically assume that markets are always efficient - sometimes they are not predictable at all.

A key question introduced by Mark Yallop was how can “information asymmetry” be regulated and furthermore, how can its impact on customers and markets be regulated? Within some sectors of financial services information asymmetry is the basis for the business model. How does one customise services for projected clients or patrol on an international basis when the line drawn between risky and non-risky can vary greatly between regions? Intrusive policing must be avoided?  In formulating recovery regulations international strategies can become unhelpfully complex.  Ultimately banking has to decide which sectors need which “diet that they can digest”.

Andrew Bester underlined the importance of rebuilding trust in the banking industry and said that even as a junior executive he noticed too much leverage in the system. The key point - “the customer” – figured in his assertion that trust is earned through interaction with clients. He also discussed the role that banks and finance should play in helping the economic growth.

Iain Cummings made the pithy observation that, to paraphrase “Dirty Harry”: “a man’s got to know his limitations” and the same applies to institutions. Again the customer must come first when boards examine what might be the potential outcome of strategies and above all who is in fact the customer in question. He went on to note that unfortunately technology has reinforced the “silo” problem in the modern banking industry with different areas being unaware of others’ activities, most particularly in customer outcome. The many varieties of products and services often over-stretch regulatory requirements.  As ever, consumer choice needs to be given due weight in business choices.

During the Q&A, the following points stood out.  The question of shareholder mobility, and in particular inadequately informed institutional investors, coupled with inadequate information in annual reports, contribute to the lack of adequate self-regulation, thereby necessitating the government to step in, taking over the traditional role of the shareholder. John McFarlane closed the 1st session with the simple, sharp conclusion: “the solution to less regulation is to stop screwing up”.

Session two

The second session began with Andy Love MP providing an overview of the Parliamentary Commission on Banking Standards report which was welcomed by all speakers. Mr Love made the stunning but chilling “modest proposal” that there may perhaps be a need for the regulator to impose up-front civil sanctions unless it can be proved by the relevant individual that steps were taken to avoid serious malpractice – turning the “innocent until proven guilty” tradition on its head. Responsibilities need to be assigned concerning the most important decisions. More specifically, sales-based remuneration needs to be subject to regulation. Ultimately, where tax-payers’ money is involved, everyone must make a contribution. The biggest problem remains yet to be resolved: how do you regulate a global financial centre situated within a moderate-sized regional economy. Getting the balance right is the key issue.

Anthony Browne made the point that changes in culture must come from the top of the organisation, from the board and chief executive who set the tone. The new ‘senior persons regime’ recommended in the PCBS was discussed and whether individual responsibility was the way forward in changing culture.

Sir Thomas Harris, in a personal reflection, mentioned that international competitiveness was not a big enough feature in the PCBS and that it is important that we consider the potential impact of the PCBS’ recommendations. He pointed out that the UK is significantly out of line with best practice elsewhere. With particular reference to the proposed 10yr bonus delay, how would this apply to operations abroad or foreign talent working in the UK?

David Craig brought up general questions in need of answers: with the “electrification” of banking, how is competiveness ensured in a virtual world?  How has the USA restored confidence in its system?  And at the heart of the current regulatory system, are regulators themselves engaged in “mission creep”, accusing one another of detrimentally increasing complexity. He mentioned that through their research, they noted 70 changes or updates to international regulation on a daily basis. This huge volume of regulatory change is just one of the ways in which policymakers are trying to ensure that past mistakes are not repeated, but he stressed, it is important to make sure that changes in regulation do not come at the expense of growth.

Simon Gleeson put forward the telling question of how to regulate non-banking activities within the financial services spectrum?  Is there a need to examine some form of regulatory interfacing?

Chris Cummings made the salient point that while achieving trust and transparency, we must not lose sight of what our customers want in particular with reference to a regulatory “level playing field” versus a fragmentation of the industry.  With particular reference to the pending free trade agreement, the USA has concerns about the inclusion of the financial services industry which might weaken aspects of Dodd/Frank.  Firms in farming to pharmaceuticals benefit from financial services and so we must make sure that diverging regulation will not hinder progress in the trade agreement. Financial services are “the catalyst” in the free trade treaty and regulatory coherence must be a key issue in all trade decisions.

During the Q&A, an interesting divergence was pointed out in that while the UK is running Basel rules, with some negative impact on SMEs, other EU countries are not adhering so strictly to Basel and SMEs have fared better.  Anthony Browne pointed to a telling need for the professionalization of different aspects of the industry. There were subsequent feisty observations about “witch hunts” and “toxic employee relations” which shall remain unaddressed.

It was clear that all of the panellists agreed that we must regain trust in the financial services and that a key part in achieving this will be by going back to basics and making sure that the customer is at the heart of any business. All in all, there was much food for thought for participants to discuss at the networking lunch and beyond.

Prepared by Penelope Bridgers, Special Advisor, IBDE