REUTERS SUMMIT-Conduct message not getting through at UK banks -BoE's Bailey

(For other news from Reuters Financial Regulation Summit, click on http://www.reuters.com/summit/FinancialRegulation16)

* Bank CEOs' conduct message not getting to rank and file

* Bailey wants shareholders to be more vocal at banks

* Bailey to bolster FCA's mission message from July

* Bailey sees more realism in bank pay, shareholder pressure

By Huw Jones and Andrew MacAskill

LONDON, May 16 (Reuters) - British bank bosses are not getting the message through to staff about rooting out conduct that led to the financial crisis and to customers being ripped off, Bank of England Deputy Governor Andrew Bailey said.

Many of the largest banks required taxpayer-funded bailouts and were embroiled in scandals including mis-selling loan insurance and complex interest-rate hedging products and rigging global foreign exchange and benchmark interest rates.

Bailey takes over as chief executive of the Financial Conduct Authority (FCA) after its first CEO, hardliner Martin Wheatley, was ousted by British finance minister George Osborne, in a move widely interpreted as a desire to go easier on banks.

Running banks is now far more about managing changes to business models than winning new clients, and although the tone of management has changed, this has not filtered all the way down through the organisations, Bailey told the Reuters Regulation Summit.

"The big challenge for them is ... what is called bridge to engine room," he said on Monday. "How do you know what your business is doing?"

Bailey, whose appointment was well received in London's financial circles, said the high level of complaints to the Financial Ombudsman, and the volume of grievances being validated, shows that British banking still needs reform.

MISSION TO EXPLAIN

Bailey, who takes on his new role in July, said he wanted to improve understanding of the FCA's mission, as the three-year old watchdog moves into a new phase of regulation following a slew of capital and conduct crises at Britain's banks.

His predecessor Wheatley had pursued a "credible deterrence" policy, inherited from past head regulator, Hector Sants, who warned banks at the height of the financial crisis to "be afraid" of the watchdog.

"I don't make statements of the 'be very afraid' nature or 'shoot first' because we are in the business of solving problems," Bailey said, adding that the FCA must take into account "quite reasonable" objectives raised by government.

"When people talk about regulatory independence, you have to explain it does not mean that you are on a different planet."

Shareholders also needed to become more vocal and were already making their voices heard in relation to banker pay, where a "greater sense of realism" was now apparent.

Follow Reuters Summits on Twitter (Swiss: TWTR.SW - news) @Reuters_Summits (Editing by Sinead Cruise and Alexander Smith)