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In Focus Consumer Credit


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l Standard setting has to be a collective effort if it is to be successful,


creating a level playing field, with accepted norms of behaviour. l The focus should be on areas of banking activity where legitimate concerns about current practices have been expressed and which do not lend themselves to statutory regulation. The report also made the crucial point,


as regards correcting what Bank of England governor Mark Carney terms “ethical drift”, that banks could learn from each other about good practice when it comes to mentoring and providing guidance on ethical issues in the workplace. In other words, the principles referred to


above lead to a process involving a form of collective action that brings in both the market and its stakeholders.


What kind of standards? One of the potential obstacles to developing and keeping momentum in standard-setting is confusion over just what a ‘standard’ in this context should consist of. There are bodies in various sectors


(including banking) that set ‘professional’ standards that are, essentially, concerned with levels of technical attainment and achievement. To the extent that moral or ethical questions are addressed, the standard tends to operate only at a very high level. Standards, such as these, are important and worthwhile in their own right, but they do not address the kind of ‘grey area’ problems that are the concern here. The standards that are needed for these


problems have to cover questions where: l No clear answer is provided by law or regulation. l Applying a ‘high level’ standard only results in more questions than it answers. l The relevant banker, conscious of shifting social expectations, should be asking himself: “This may be legal, but is it right?” Since one cannot provide a detailed rule


for every eventuality, conventional regulation leaves gaps that must be filled by judgement on ‘right’ and ‘wrong’ behaviour. For effective practice, market participants


must be in a position to judge appropriate conduct across a broad range of potential


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Standards, which are self-derived and adhered to, can be a potent symbol of the desire to change and narrow the gap in trust that exists between industry and customer


studies can explore the “perceived uncertainty over the boundary between acceptable and unacceptable practice”, but beyond these market-specific areas, the list could be greatly expanded if the analysis was applied to banking generally. For example, looking at retail business


products: l Dealing with an SME customer that is in default (including the sale of the loan). l Valuing a customer’s property for the purpose of determining if a financial ratio is satisfied. l Dealing with complaints of mis-selling to SMEs.


situations – these are the standards from which to derive sectoral benchmarks. Without this, how can the market determine what is a defensible response?


A process for creating standards So how might the ‘grey areas’ be identified and how might one go about assessing the ‘defensible response’? We suggest that this should be done – as the FEMR envisages – by developing scenario-based responses in certain agreed ‘grey areas’. The best practice responses are derived


from collaborative feedback and are benchmarked for efficacy against a series of trust and sustainability indicators – from, for example, strict legal and regulatory risk, governance and ethical outcomes, to conflicts with established market practice. The use of case studies identifies the


point of discretion that gives rise to the ‘grey area’ risk while testing the market bias and thus developing what might be termed a more ‘defensible response’ which, in turn, could then inform a set of agreed ‘standards’. The FEMR process has defined some areas within FICC markets where case


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Taking action to define standards Recent developments, including the FCA’s dropping of their banking culture inquiry, have given pause for thought as to whether or not the industry and its institutions are committed to the standards agenda. But, in any event, we believe that there is work to be done on the part of civil society organisations (who are, after all, amongst the stakeholders affected by financial-market reform) in taking standard-setting forward. We are introducing a programme


designed to assist with the development of banking standards along the lines suggested in the BSRC report and which will meet with the objectives and expectations of the FEMR. This will encourage financial market participants to adopt a case-study approach to the internal discussion of grey areas and, ultimately, to use this as the foundation for individual bank standards and industry-wide standards. Without active collaboration, within the


sector, in creating and developing such standards, scepticism is justified when judging the desire of the industry to effectively raise the bar for conduct; however if the banking sector actively drives forward the creation of common standards it can act as a powerful platform for the future of the industry. Standards, which are self-derived and


adhered to, can be a potent symbol of the desire to change and narrow the gap in trust that exists between industry and customer when it comes to the conduct arena. CCR


February 2016


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