Yes. We view ethics as being a core function within the decision-making equation. Ethical issues are not merely for discussion at lofty, philosophical levels. They can arise with surprising frequency in the course of an ordinary working day. Managing ethical issues should sit alongside managing risk, specifically legal and conduct risk.
Whilst any standards adopted by a bank must of course be in conformity with what regulators require, we feel that the organisation should see such regulatory requirements as a minimum and steer away from an approach that relies too heavily on ‘reverse engineering’ what regulators have laid down into a bank’s own organisational structure and deeming that to be sufficient.
Banks should be encouraged to start afresh, notionally, with a ‘tabula rasa’ when devising ‘ethical’ rules for how they wish their staff to behave in the light of the experiences they have had. They should then, when they have developed some substance to such rules, check back against what is required by regulation and ensure that no regulatory requirements have been omitted. The difference in approach is important. One approach involves a mindset that poses, as a first question: what are the regulators making us do? The other poses the first question: what do we think is right? The banks’ ‘restore trust agenda’ (which should be more about deserving trust than simply regaining it) is not about an ongoing struggle to get the compliance function to work effectively. It is about re-thinking, for each person in the bank, why he/she goes to work every day and what makes him/her proud of a job well done.
It follows from the above that we would encourage banks to surpass the standards of regulators not merely to ‘meet or surpass’ them. We agree that the organisation should benchmark the banks’ efforts in this area against good practice. We see the (p. 238) organisation’s role in the cross-pollination of ideas that lead to good practice as crucial.
Whilst training in conduct matters is, undeniably, a ‘good thing’, staff should not need to be trained in order to understand the importance of honesty—if they do, the bank really does have a problem. Sadly, however, it is want of honesty that seems to have given rise to some of the most prominent scandals of recent times.
Notwithstanding the above paragraph, we do think that all concerned in the industry (including regulators) need to develop a better common understanding (which they should share with the organisation and the public) of where some of the boundaries lie in relation to, for example, ‘manipulation’ and taking advantage of another’s ignorance or error (leaving aside consumers, who are a special case). To use a celebrated example of language from a recent scandal, is it ever appropriate to regard a counterparty as a ‘muppet’ and milk him for what you can get? There is a danger that we set up training programmes for the sake of appearance and overlook some of the fundamental right vs. wrong judgement issues, which still require a more substantive debate in the industry—a debate that might include the continued efficacy and modifying the application of parts of COBS in regard to eligible counterparties.
The extent of the need for training in banks should, one would think, depend on how well the staff of any given bank understand (a) what honesty means and how it affects decisions and behaviour in their work and (b) how decisions should be taken in the inevitable ‘grey areas’. A ‘programme’ of training designed for all banks may, by its nature, be somewhat crude (looking as though it has been devised in a ‘one size fits all’ workshop) and, as a result, not taken very seriously. We do not believe it is being suggested that all banks have the same training programme but we would caution that the idea of assessment of training by the organisation should not lead to this result.
Training needs to address the potential confusion for staff that can arise when there is a sharp change in values and the bank’s judgement on right and wrong behaviour. What was OK yesterday, even encouraged, may not be today. And vice versa. No one criticised generous bonuses in years leading up to the Crisis and much of the now-condemned ‘excessive’ and aggressive behaviour was well known and not regarded as a sign of serious moral decay or reputationally problematic for banks (or something to which regulators should respond). Now things are different. And the changes in culture that post-Crisis scrutiny of banks will require is not yet a closed list. The implications for conduct are fundamental.
We believe that on-line training should be discouraged (because it is unlikely to be effective) and face-to-face training encouraged.
We would suggest that training initiatives should include off-site ‘schools’ where staff from different banks can compare experiences and seminars and workshops are arranged at which examples of best practice, ‘lessons learned’ etc. can be openly discussed. Confidentiality of a bank’s sensitive information needs to be respected but it is a characteristic of a ‘profession’ (if that is what we are trying to set up) that fellow-professionals meet each other and talk about matters of shared professional interest (especially questions of professional ethics) reasonably regularly. (NB These occasions should not be arranged so as to be marketing opportunities for outside advisers).’