The culture of profit before service at banks has led to a spate of serious scandals that have destroyed the public’s trust in the banking system. In March Transparency International wrote to the G30, a group of senior representatives of the private and public sectors and academia, which was tasked to develop recommendations on what to do.
Today the G30 report on banking conduct and culture was published and we are encouraged that it took on board many of our key recommendations. We particularly stressed the need for a cultural transformation initiative in banks, led by boards and management, designed to improve values and culture and coupled with supervisory monitoring.
Recurring scandals ranging from money laundering to rate-rigging continue to demonstrate that there are problematic cultural norms within the banking sector that seem to be completely removed from banking’s original purpose: to serve society. While some banks have already introduced related reforms and many have made bold commitments, there is still a long way to go with regards to implementation and effective monitoring.
These are just a few examples that illustrate the existing culture and attitudes in some banks towards rigging the markets:
Quote by a trader engaged in Libor rate-fixing: “mate yur getting bloody good at this libor game … think of me when yur on yur yacht in monaco wont yu.” Another trader described the rate-fixing as an industry-wide practice.
According to a recent survey of financial services professionals a quarter of those surveyed said they would likely engage in insider trading to make US$10 million if there was no chance of being arrested.
To promote a greater corporate culture of integrity banks should address five important areas for action:
- an incentives structure that promotes ethical and compliant behaviour
- effective management of conflicts of interest
- rigorous anti-money laundering checks
- robust monitoring and accountability, and
- transparency towards stakeholders.
To restore trust and ensure accountability banks should publicly report on the measures they have taken in these areas and monitor their impact.
On the regulatory and supervisory side, regulators should undertake periodic integrity stress tests of banks in each of these areas and make public the results. To reinforce necessary action by banks individuals and senior management should be held accountable for serious misconduct or personal involvement in illegal behaviour.
Here are Transparency International’s detailed recommendations to promote a greater culture of integrity in the banking sector.