My Lords, there can be little doubt that an enforceable code of conduct is sorely needed in this industry. Many banks publish so-called codes of conduct that read impressively. The Barclays code of conduct says:
“We … expect every Barclays employee, and others who work on our behalf, to conduct themselves according to consistently high professional and ethical standards. This expectation applies equally to all, whatever their role”.
This from the bank that sold PPI and whose employees fixed the LIBOR rate. HSBC encourages employees to make decisions based on,
“doing the right thing but without ever compromising the ethical standards and integrity on which the company was built”.
Yes—that is the same HSBC that we learnt on Friday had been facilitating tax and AML-avoiding bank accounts in Jersey. Some integrity.
The Chartered Banker Code of Professional Conduct, which sets out the ethical and professional attitudes and behaviours expected of bankers, has been endorsed by virtually every major high street bank. But there is clearly something missing. The words are there, but the behaviours do not follow. The code does not have the necessary sanctions to strike people off the register, nor does it have governing structures independent of the industry.
Other professions have codes of conduct which are independently supervised and enforced. In the case of barristers and solicitors, the functioning and enforcement of these are overseen by the Legal Services Board. In the case of accountants, auditors and actuaries, they are overseen, and in the last resort enforced by, the Financial Reporting Council, which I noted before, sadly, gets no mentions in this Bill, despite the importance of its role. But here we are concerned with those bankers, and others, who do not belong to one of those professions and therefore have no individual code of conduct to cover integrity, the avoidance of conflict of interest and other behavioural matters. For them, there is no supervision of their individual behaviours, and no professional enforcement procedure; action kicks in only when specific rules are broken. This is not good enough for an industry that has shown itself lacking in the very attributes that this vital sector should have engraved in its DNA. The evidence read out about the last amendment by the Minister is ample evidence of that. It is an industry where conflicts of interest are too rarely identified, declared and avoided. LIBOR and PPI are examples.
There is a Bank of England code for members of the FPC, but there is no requirement for a code for directors and senior executives of banks and other parts of the financial services. Yet as the noble Lord, Lord Turner, acknowledged, bank directors bear responsibilities to the public which go beyond those of other private sector directors. Any failure on their part is therefore,
“of public concern, not just concern for shareholders”.
Hector Sants, then of the FSA, told the Treasury Select Committee that,
“we should change the regulatory regime to … ensure that people who have shown … serial misjudgment are not allowed to run financial institutions again”.
However, where does this Bill stop them? Simply relying on the significant influence function procedure may not be enough and, anyway, it is a slow burn. If the person concerned moves abroad, no penalty is exercised and no bonus returned. Or if they apply for a significant influence function after some years, there may be no current or warm evidence or witnesses on which to base a decision. A code of conduct is needed to which these people must individually sign up and a breach of which should expose them to investigation and possible action. Without this, we will continue as before with all our interests at risk.
I should note that the Government have accepted the need for a code to cover one aspect of banks’ day-to-day work—the submission of rates for the LIBOR benchmark. Amen to that; we will welcome that shortly. However, surely it is nonsense to agree the need for a code for just one aspect of the banks’ work, because it has been found wanting, but not to the myriad other decisions which banks and their staff take every hour of the day. The exact name of such a code may be debated: John Kay’s review spoke of good practice; some professions call it a code of ethics. The principle is that it governs behaviours, outlaws conflicts of interest and is enforceable. It governs the profession of stewardship, which is what most of this industry is about.
Since the Parliamentary Commission on Banking Standards was established, the BBA has launched a taskforce to investigate a code of conduct. However, I believe that a standards board run by the BBA—the organisation that administered LIBOR—would have zero credibility. A standards board must be independent of the industry, with the ability to set high standards, the tools to supervise the code and the power to strike off those who breach the code. The other professions’ codes of conduct lay down exactly what is expected of people and we need the same for banking. Anyone who breaks the conduct code should be struck off, whether for market manipulation, gaming indices or deliberate mis-selling. People should not be allowed in banking again if they have mis-sold a product.
I believe that confidence will not return until we strike off those whose conduct has let us all down. The details of the code need not detain us here. Amendment 31A, which is consequent on Amendment 25B, allows for the code to be drawn up by, we hope, the FCA and the PRA in consultation with relevant stakeholders. No one, I am sure, can argue against the intention of this amendment. I trust that the Minister will not argue against its wording. I beg to move.