The Bank of England has provided its backing for the formation of a new professional body called the Banking Standards Review Council (“BSRC”) which will monitor banking standards in the UK banking sector.
The establishment of the BSRC was included in the recommendations of the Parliamentary Commission on Banking Standards inquiry which examined the professional standards and culture of the UK banking industry following the LIBOR scandal in 2012.
The BSRC is being funded by some of the UK’s largest public and private banks who are keen to repair some of the trust lost by the 2008 financial crisis and the governance issues that have come to light during the crisis.
Aims Of The Council
The Council intends to work with banks to create a new industry specific code of practice, requiring banks to commit to continually improving their culture and reporting to the public annually on progress made. The Council will also produce an annual report highlighting the progress and shortcomings of both the industry and individual banks.
UK banks will not be obliged to report to the BSRC. However, as the UK’s six largest banks have agreed to fund the Council, which is expected to cost between £6-10m per year, it is expected that all other UK banks will join the initiative.
Furthering The Enforcement Of Appropriate Governance Frameworks
The Council aims to set new good practice protocols which could potentially deal with:
- Whistle-blowing procedures;
- Dealing with conflicts of interest;
- Approach to retail sales incentives; and
- Processes for handling small businesses in distress.
The guidelines for banks in these areas come from a range of sources and the BSRC aims to combine these into one code, specific to the banking sector with a view to avoiding any confusion as to which guidance to use in a given situation.
Repercussions For Lending Institutions
The BSRC will examine the banking culture down to the finest detail, including employees’ understanding of codes of conduct, and will also go as far as to scrutinise the competence of bank employees and their professional qualifications.
The Council will not have any powers to reprimand banks. The ultimate responsibility for regulation and investigation of the banking sector will remain with the Financial Conduct Authority (“FCA”).The BSRC will act as a best practice advisory on embedding new codes of conduct. It will also identify and make public the names of individual banks who have not met its new standards.
How Effective Is The BSRC Likely To Be?
Sceptics of the BSRC have criticised the initiative mainly due to the fact that participating with the Council is a voluntary process and also because the Council is to be funded by the banks. This structure leaves scope for criticism and many senior executives from outside the banking sector suggest that the effectiveness of the Council will ultimately depend on the independence and forward-thinking of the Council’s members.