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Annual Review 2017/2018

CHAIRMAN’S FOREWORD
DAME COLETTE BOWE

People talk a lot about trust; who deserves it and who doesn’t, and why it is hard to regain once lost.

And institutions of all kinds, public and private, and in all sorts of sectors, worry about whether they are trusted and, if not, what they can do about it.

The Banking Standards Board (BSB) was born at a time of a widespread failure of public trust in the banking sector, following the financial crisis.

The focus of our work is on trustworthiness: not on whether trust is given, but on whether it is deserved. And while trust can take a long time to earn, trustworthiness is in the hands of firms themselves. A firm cannot decide to be trusted: but it can decide to aim to be worthy of trust.

The banks that have come together on this project have committed themselves to understanding better what drives the combination of incentives, other influencers of conduct and overall culture that together can determine trustworthiness.

The banks that are members of the BSB are drawn from right across the sector: from large global banks that have major activities in the UK through long-established UK based banks and building societies through to new start-ups with different business models.

And this is the second of our fully worked-up reports on the ground-breaking work of the BSB.

The main messages emerging from this most recent work are:

  1. the clear importance of leading by example. When it comes to the alignment between a firm’s stated values and the way that its own employees see the firm doing business, it is not what leaders in the organisation say that makes a difference, but how they are seen to behave;
  2. the health and wellbeing of employees remains a key area of concern and in consequent need of improvement. Overall, the percentage of employees who said that working at their firm had a negative impact on their health was the same in 2017 as in 2016. Perceptions of respect and of organisational fairness or justice also emerge as important influences on individuals’ wellbeing; and
  3. a reluctance to speak out on issues certainly reflects, in part, fear of the consequences of doing so; but it also, and to a roughly equal extent, reflects the perception that nothing is likely to happen even if something is said. Fear and futility, in other words, are equally influential in constraining challenge. Firms need to think about not only how they encourage feedback, but also how they respond to it when it is received.

All of this is expanded on in the detailed report that follows.

The work that has led to the production of this report has involved many people, including the more than 36,000 people working in the sector who took part in our Survey.

We are grateful to them all.

And I would like to thank in particular the chairmen of the boards of the BSB’s member firms, with whom I have had many discussions over the past year. These discussions have made clear both the seriousness with which boards are addressing the challenge of managing their culture, and the importance of the kind of evidence we are assembling to help prioritise efforts and assess progress.

I would also like to thank the BSB’s Board members for their strong and constructive contributions to shaping the work of the BSB.

I am most grateful to Antonio Simoes of HSBC and Craig Donaldson of Metro Bank who have been Board members from the start, and who have this year stood down from the Board.

We are delighted to welcome Janet Pope of Lloyds Banking Group and Mikael Sorensen of Handelsbanken to the BSB Board.

One of our non-practitioner Board members, Baroness Onora O’Neill, has also decided to step down from the Board in the spring of 2018. She has made a strong and distinctive contribution to our work from day one, and I am very pleased to say that she has agreed to continue as a senior adviser to the Board, allowing us to continue to benefit from her challenges and insights.

Dame Colette Bowe, Chairman

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Senior Managers and Certification Regime

Exploring how the SMCR - and especially Certification - can be implemented in the most effective way across the sector.

The Senior Managers and Certification Regime is a major regulatory change that will affect all banks and building societies. Responding to recommendations by the Parliamentary Commission on Banking Standards, the government and regulators have together developed a comprehensive framework to ensure better accountability and responsibility for behaviour, competence and culture in banks and building societies. The new framework provides an opportunity for the industry to focus on and demonstrate a culture of professionalism. We are working with firms and regulators to facilitate this, including areas where a common approach across firms could support both the objectives of the regime and the skills and development of the people covered by it.

Professionalism

Evaluating whether a more 'professional' approach to banking would improve behaviour and competence across the industry.

The Parliamentary Commission on Banking Standards found that 'banking culture has all too often been characterised by an absence of any sense of collective responsibility to uphold the reputation of the industry', and argued that a greater focus on professionalism could be an answer to this. Working with a leading team at the University of Leeds, we are researching the issues around professionalism in banking. In particular, we are reviewing how professional qualifications are currently used across the sector, and at whether a stronger role for professional bodies, along the lines seen in some other sectors, like medicine or law, would help raise standards. To inform this work and develop a rounded picture of 'professionalism' and what it means in banking, we are surveying banks and building societies, professional bodies and a wide range of other interested groups, including consumer bodies and investors.

Assessments

Providing an honest and impartial assessment to Boards of progress against objectives on behaviour, competence and culture.

The BSB assessment exercise presents Boards with an objective and impartial view of their firm's culture, identifying where things are working well and recommending areas for improvement. It draws on information not only from Boards and senior teams, but also from employees, investors (or members), trade unions, customer groups and other relevant bodies. In doing so, it will provide constructive challenge to each firm individually, while building a collective understanding of common issues across the industry, or sectors within it. We undertook our first annual assessment exercise in 2015 with ten firms (Barclays, Citi, HSBC Bank, Lloyds Banking Group, Metro Bank, Morgan Stanley International, Nationwide, RBS, Santander UK and Standard Chartered). The BSB itself will not publish individual assessment reports - each firm owns its own report - but key themes and messages will be set out in the BSB's annual report, the first of which will be published in Spring 2016. Given that Board engagement is central to the assessment work, only firms that have their headquarters in the UK are eligible for the full assessment exercise. All firms, including branches of firms headquartered overseas, will however be included in a focused membership-wide survey, which will allow each participating firm to benchmark itself against its peer group.

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