Lord McFall calls for a Code of Conduct for the banking industry

John McFall, Lord McFall of Alcluith, speaks in the House of Lords Chamber

Speaking in the House of Lords Chamber, Lord McFall has called for change in the banking industry to make it fairer and more resilient, including splitting retail banking away from riskier activities, and establishing a new code of conduct for bankers.

Lord McFall referred to his work as a member of the Future of Banking Commission, which looked into the issue of professional ethics and called for a Code of Conduct for the financial industry, along the lines of codes which already exist for doctors or lawyers.

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He said,

“…we need to tackle the culture of the market. I think that if Vickers missed anything, it was looking at the issue of culture and governance. (…

We [members of the Future of Banking Commission] suggested a code of conduct for the banking industry and a new professional industrial body along the lines of the General Medical Council or the Legal Services Board. If individuals in banking engage in misconduct, they would be struck off. I think that if banking wants to be seen as professional, it has to step up to the plate on that issue.

(…) It is only culture and behaviour that will change the financial services industry in the long term. My plea is that companies that are presently looking at their business models as a result of Vickers should incorporate that issue of culture and ethics.”

The Peer, who is the former Chairman of the House of Commons Treasury Committee and former Member of Parliament for West Dunbartonshire, also reiterated his calls for a split between retail banking and investment banking. Lord McFall believes that retail banking, which benefits ordinary customers, should not be carried out in the same companies as riskier investment banking activities.

He has questioned whether a “ring-fence” between these activities, proposed by Sir John Vickers and his Independent Commission on Banking, will be robust enough.

He said,

“I am aware that we will never be able to eliminate risk in future financial crises, but taxpayers should not be required to come to the rescue again. (…)

That is why structural change is essential to make UK banking more resilient. In that vein, I welcome Vickers, but I am very much aware that there are issues that the report will not tackle. For example, it will not tackle the issue of too big to fail or the issue of cross-border resolution, particularly in Europe at the moment, but it has taken a stab at it.

The characteristics of the financial crisis were, quite simply, complexity, extreme risk-taking and lack of corporate governance. (…) The core issue is the ring-fence. Is the ring-fence an impervious wall, or is it one with multiple gateways that are easily passable? That is the issue for us as politicians and policy-makers.”

Read Lord McFall’s full speech here.

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