Can banks play by their own rules?
25 October 1999
21 February 2014
28 February 2014
5 March 2014
2 December 2013
5 March 2014
The new boss of the Banking Code Standards Board wants banks which fail to obey their own code of conduct to be named, shamed and fined. The forum asks if the next step is statutory control.
Banks and building societies are facing huge fines and public shaming under proposals being drawn up by the chief executive of the Banking Code Standards Board.
The industry's voluntary 11-point code of practice says banks must keep customers abreast of changes in banking practice, display tariffs and treat debt sympathetically. But the board has no powers to fine or name offenders if banks and building societies break the guidelines.
All of the main high-street banks, including HSBC, Barclays and Lloyds, subscribe to the code, which was introduced in 1992.
The new chief executive of the Banking Code Standards Board, Seymour Fortescue, is pushing to increase the body's powers. His proposals are being discussed by the board for possible inclusion in a forthcoming review.
Are Fortescue's proposals a step towards introducing statutory regulations? Is a voluntary code sufficient to keep the banks in line? And what is the rationale behind introducing severe penalties for breaking the code's guidelines?
Simon Gleeson, senior associate in the regulation department of Allen & Overy, believes legislation is not far off.
"My feeling here is full statutory regulation is pretty likely and all we are talking about is how long the industry can put it off. In principle, there is no earthly reason why we should not have it."
In the meantime, he believes fines are a good idea. "It actually all goes back to the politics of public expectations. It is public catharsis to fine [offenders] large amounts of money."
But Gleeson says that no matter how large the fines are, it will not damage the banks since they are so financially stable.
Gleeson believes tougher penalties will create more work for law firms, but adds: "It is not a good thing for any area of activity to get tied up with financial rules. The more sand you put in the machine the fewer transactions will come out and I would much rather do deals than give regulation advice."
Lennox Towers, a partner in the banking and financial services group at Addleshaw Booth & Co, believes lawyers' workloads will rise.
"There will be more pressure on banks to ensure that what has been done is thorough and I imagine they will be looking to their advisers to make this happen."
But he does not believe the industry is breaking the code. "I am quite surprised that [Fortescue] is jumping in with both feet. I do not think there is a head of steam building up."
Towers says: "It is always preferable to give voluntary codes a chance. Statutory regulation gets so burdensome and it does not always work. If a voluntary practice can be made to work then it is invariably better.
"I would be surprised if it went from a voluntary to a statutory code without evidence of failure to comply or public concern."
David Hughes, a partner in the banking and regulatory group at Dibb Lupton Alsop, says the proposals are logical.
"Naming and shaming is inevitable and consistent with what is happening in other regulated industries. Reputation is very important and if [banks] do not get it right it is going to become public knowledge."
But he adds: "What I would hope is that they should be serious and not minor breaches of the code."
He too believes statutory regulation is on the horizon despite a preference for self-government.
"I would like to think the code will work. Just imposing statutory regulations on people is much less workable than when you have industry regulating itself because it knows what is workable and what it can work with."
Even if the new penalties are passed he doubts the legal workload will increase.
"There is perhaps an argument the banks will require external independent investigation rather than just internal reports but we already have quite a few referrals of this sort."