Banking Standards

Submission the Worshipful Company of International Bankers (S030)

Principles for Good Business Conduct

Summary

· The Worshipful Company of International Bankers is the Livery Company for International Bankers.

· It developed its Principles for Good Business Conduct in 2004.

· The 8 Principles focus on behaviours that are personal - trust, honesty and integrity.

· In addition the Principles articulate the Company’s expectation that members will:

o manage conflicts of interest;

o observe all applicable laws, rules and regulations, and;

o maintain and enhance professional competencies.

· The Principles are public declaration of what the Company stands for.

· All members are expected to observe the Principles in their business dealings.

· A membership review procedure is in place should a member breach the Principles.

· The Company’s Principles have been adopted by the Chartered Institute for Securities and Investment.

Introduction

1. This paper is submitted by the Worshipful Company of International Bankers (WCIB) in response to question 1 of the Parliamentary Commission’s call [1] for written submissions and addresses the issue of professional standards in the UK banking industry by discussing the development of its own Principles for Good Business Conduct.

The Worshipful Company of International Bankers

2. The WCIB is the Livery Company for finance professionals. It combines the traditions of the medieval City Livery Companies with a modern outlook on the financial services sector and emulates the evolution of the original purposes of the Livery Companies and Guilds; namely fellowship, charity, education and the promotion of trades and professions. Its membership has grown rapidly since its formation in 2001, perhaps evidencing the desire of individuals in the financial services industry to belong to an organisation which promotes high ethical standards, as the WCIB seeks to do. Currently it has 784 members from almost 50 different countries of whom a quarter are women and a fifth below the age of 35. Although predominantly being made up of financiers working in the banking, insurance and shadow banking sector members also includes lawyers, accountants and other professional advisors.

3. Members of the WCIB are members in their personal capacity. The WCIB is not a trade body that lobbies on behalf of its corporate members.

More information about the WCIB is available from its website at:

http://www.internationalbankers.co.uk

Membership

4. Potential members are usually proposed and seconded by existing Company members after having completed a membership application form, but where a candidate is not put forward by an existing member s/he is interviewed by the chair of the Membership Committee. As a final step in the membership ratification process the potential candidate’s name is subsequently circulated to members of the membership committee for approval.

5. The membership form does not currently require a potential member to disclose whether they are on the FSA’s Register as being approved to carry out controlled functions. Neither does the Company office carry out a check on that individual’s FSA disciplinary history. The WCIB is now considering whether to ask potential members to disclose this information on their application form

The Evolution of the Principles for Good Business Conduct

6. The first objective of WCIB’s Ordinances concerns ‘standards of excellence, integrity and honourable practice’ and is therefore something which all members swear to adhere to when they are admitted to the Company as they agree to ‘well and truly observe and keep all By-laws, Rules and Ordinances’.

7. Following a speech by Christopher Fildes at a dinner in 2003, at which he had been reminiscing about standards of conduct in the City over the years, especially pertinent at the time, following the Enron and WorldCom scandals in 2001 and 2002, a sub-group was formed to draft a code and the Principles which emerged were approved by the Court on 27 September 2004. The idea of a code had been vigorously supported by Lord George, a former Governor of the Bank of England and it was fitting that they were published and circulated to all members after the 2005 Guildhall banquet, during his tenure as Master and are now known as the Lord George Principles for Good Business Conduct, which are attached as Appendix 1.

Developing the Principles

8. In drafting the Principles the sub committee took a number of factors into account. It believed that the principles should focus on behaviours that are personal - trust, honesty, integrity, recognising that corporate integrity and reputation flows from individual behaviours and that corporate culture is set at the top of the institution. As the WCIB’s membership focuses on senior figures in financial services both in the City and overseas, the principles of good business conduct would be a public declaration of what the Company stands for and how it wanted to be seen.

9. The Principles were specifically crafted to contrast with the prescriptive, form filling approach of Sarbanes-Oxley, the need for which arose from business people’s desire to find ways through very prescriptive rules to create financing structures that were opaque, difficult to risk manage and did not share benefits fairly.

10. Those drafting the WCIB Principles were firmly grounded in the expectation that senior managers of banks are responsible for their banks (reflected too in the FSA’s High Level Principles) and that this construct meant that it would be easy for senior bankers in the City to also ‘sign-up’ to the WCIB’s principles.

Policing the principles

11. The Company takes a passive approach to vetting the probity of a potential new member, relying on existing members’ knowledge of individuals active in the City and the proposing/seconding mechanism during the membership entry process. Only a very small number of individuals who have sought membership without being personally known to a member of the Company have been refused membership as a result of the interview process, not because their probity was doubted but because it was felt their motivation for joining the Company did not fit with its core purposes.

12. This issue of enforcement of the Company’s Principles was specifically addressed as they were being designed. It was decided that it would not be appropriate for the Company to establish a ‘stand alone’ standards committee which would ‘sit in judgement’ in relation to a particular individual’s behaviour because of the potential reputational damage that might be caused and the associated risk to the Company. Furthermore because of the close alignment of the Company’s principles to those of the FSA it was thought more appropriate that, at least in the first instance, the FSA should take the lead in pursuing breaches of its own Principles.

13. However in early 2005 a protocol was established to deal with occasions when concerns about a member’s conduct or circumstances arise that may be ‘injurious to the character and interest of the Company’, which could include a breach of the Company’s Principles.

14. According to this protocol the matter is progressed as follows:

- the matter is brought to the attention of the Chair of the Membership Committee or the Clerk;

- the Membership Committee will meet to decide whether the matter should be the subject to further enquiry at a further meeting;

- if a decision is taken to enquire further into the matter the member concerned is notified of this and invited to make a written submission;

- After the further meeting has been held the Chair of the Membership Committee will make a recommendation to the Court which will consider it and the oral representations of the member concerned;

- Within 14 days of the Court making its decision the member concerned is notified by the Clerk of the decision, together with a statement of reasons for its decision.

Further Developments

15. Following the promulgation of the Company’s Principles the Chartered Institute for Securities and Investment (CISI) quickly adopted the Principles, which now make up CISI’s Code of Conduct.

16. Members of the WCIB (and their guests) are reminded of the Principles at each annual banquet as they are reproduced in full on the menu card for the event.

Conclusion

17. Recognising its role as an upholder of industry standards the WCIB created a set of Principles of Good Business Conduct shortly after it became a full livery company, basing them on the personal behaviours of trust, honesty and integrity that it expects its members to adhere to. The Company took a decision to not establish a standards committee believing that matters of misconduct are better addressed in the first instance by regulatory action although in the case of egregious behaviour an individual’s future membership of the Company would be considered, according to a pre-established protocol, in the first instance by the Company’s Membership Committee.

Appendix 1

This description of the Lord George Principles for Good Business Conduct below is taken from the WCIB website.

The Lord George Principles for Good Business Conduct

Introduction

The core purpose of international financial service providers is to promote global economic and social welfare by aggregating financial resources, converting them into specific services and products and delivering them in accordance with the mandates of their clients, customers and counterparties. Both the public good and the personal interest that stands behind this purpose and the capacity of providers to fulfil their mandates on a competitive, efficient and cost-effective basis can be substantially impaired, even frustrated, by dishonesty or by a lack of professional integrity, transparency and accountability. Accordingly, financial service firms and their officers and employees have both a collective and an individual commercial interest in the maintenance of high standards of behaviour and of their professional reputation.

These objectives cannot be attained, however, through mere compliance with rules and regulations. Whether the prevailing regulatory environment is prescriptive or principles-based, the interpretation and observation of such rules and regulations, if it is to be meaningful, and if it is to ensure confidence at all levels, must itself be underpinned by behaviour that is rooted in trust, honesty and integrity.

The principles set out below are founded upon and reflect the essential business values which are necessary to meet these objectives and, at the same time, support the function of regulatory compliance.

Principles

1. To act honestly and fairly at all times when dealing with clients, customers and counterparties and to be a good steward of their interests, taking into account the nature of the business relationship with each of them, the nature of the service to be provided to them and the individual mandates given by them.

2. To act with integrity in fulfilling the responsibilities of your appointment and seek to avoid any acts or omissions or business practices which damage the reputation of your organisation and the financial services industry.

3. To observe applicable law, regulations and professional conduct standards when carrying out financial service activities and to interpret and apply them according to principles rooted in trust, honesty and integrity.

4. To observe the standards of market integrity, good practice and conduct required by or expected of participants in markets when engaged in any form of market dealings.

5. To be alert to and manage fairly and effectively and to the best of your ability any relevant conflict of interest.

6. To attain and actively manage a level of professional competence appropriate to your responsibilities, to commit to continued learning to ensure the currency of your knowledge, skills and expertise and to promote the development of others.

7. To decline any engagement for which you are not competent unless you have access to such advice and assistance as will enable you to carry out the work competently.

8. To strive to uphold the highest personal and professional standards.

Observance of the 8 principles above is wholly compatible with comparable notions of good behaviour which may be expected or mandated by applicable law or financial or other regulations or by the membership requirements of any relevant professional association or by any other applicable code of good conduct.

These principles comprise the general standards of conduct that are expected of members of the Company in their business relations. Their observance carries a hallmark of trust and a commitment to fair and honest dealings with colleagues, clients, customers and counterparties and to good stewardship of customer interests, whether wholesale or retail.

A material breach of the principles would be incompatible with continuing membership of the Company.

24 August 2012


[1] http://www.parliament.uk/bankingstandards

Prepared 22nd September 2012