A tough new code of conduct for bank employees and an independent body that would have powers to ban rogue bankers are among a series of tough measures proposed to restore public trust in the beleaguered industry.
I have obtained a copy of a submission made by the British Bankers' Association (BBA) to the Parliamentary Commission on Banking Standards, which was set up in the wake of the Libor rate-rigging scandal last summer.
The creation of a Banking Standards Review Council, which would be underpinned by statutory or regulatory support, is one of a series of options presented by the lobbying group.
In its submission, the BBA suggests as a starting point that reforms should look at strengthening the existing infrastructure, which would involve extensive co-operation with the Financial Conduct Authority (FCA), the new regulator that will become operational later this year.
The current system is focused on an Approved Persons Regime, which the BBA argues could be strengthened by ensuring that all banking sector roles with significant responsibility for risk or customer-facing activity would be covered. This would include anyone with a wholesale markets function, such as employees who help to set Libor benchmark rates.
The BBA says that "setting up a ‘register of bankers’ that individuals could be removed from or some sort of ‘blacklisting’ [may be necessary] with the aim of preventing an individual from working in the banking sector (and perhaps all of financial services)".
The BBA assesses two main options for an entirely new system: one would represent a "top-down approach [focused] on organisations as a whole and seeks to raise standards by requiring them to take steps to improve the oversight, monitoring and control of employees". This approach would be overseen externally by a body which the BBA proposes to call the Banking Standards Review Council.
That new organisation, the BBA suggests, "would need to be independent of the industry - by which we mean an independent non-banking chairman and a majority of non‐banking members, including customers of banking services and the public interest, but with industry support and input".
As well as overseeing bankers’ behaviour, it could also operate a whistle-blowing system for bank employees.
Employees of both UK and overseas banks would have to adhere to a code that would be modelled on the Lord George Principles of Business Conduct, which include a duty "to act honestly and fairly at all times when dealing with clients, customers and counterparties and to be a good steward of their interests".
But, the lobby group warns, the creation of a new body could effectively mean moving to a "three peaks" regulatory system which duplicated the existing regime and risked causing “unnecessary and confusing complexity”.
The BBA also highlights in its submission a "bottom-up approach...focused on professional standards [of] the individuals operating within the industry and seeks to raise their technical competencies and ethical standards. This approach is a feature of other professions, including the medical, legal and accounting sectors".
It could involve establishing a Professional Standards Board and could be “separate to the potential Banking Standards Review Council envisaged under the ‘top-down’ approach, or be one and the same”.
Anthony Browne, the BBA's Chief Executive, is due to appear before the Parliamentary Commission later on Monday, where he is expected to discuss the options contained in the lobbying group's submission.
The options were formulated by a taskforce involving major UK banks including Barclays (LSE: BARC.L - news) and Royal Bank of Scotland (LSE: RBS.L - news) , along with two European banks and one American lender which are among the BBA members. KPMG, the professional services firm, was also involved.
As Sky News revealed last week, the chairmen of the six British-based banks have met to discuss the proposals, about which they did not reach a unanimous view. Hinting at the level of debate between them, the BBA submission admits that "it may be that the answer to strengthening ethical and professional standards lies in large part with the new regulator".
Some of the bank chairmen have argued during private discussions that they should wait until the FCA has outlined its approach to tackling banking standards-related issues before establishing a new body, while others believe a new organisation should be set up as soon as possible.
People familiar with the BBA's submission said it had decided to present the pros and cons of each proposal because it did not want to appear to be prescriptive at a time when the group has been discredited by its role as the overseer of the Libor-setting process.
“There was a feeling that a single option proposed by the BBA would be discounted by the Parliamentary Commission because of the difficult time the BBA is having at the moment,” said one person familiar with the submission process.
The BBA said that tough new oversight of bankers' behaviour would not necessarily deter banks from investing in the UK.
"A well-formulated proportionate approach to any Code and Council should, in fact, enhance the attractiveness of the UK as a place to do business.
"If the application of the Code raised standards of professional conduct and enhanced trust it should attract companies, capital and clients to the market. In this respect, parallels can be drawn with the UK law and judicial system, which draws people to London by virtue of the confidence in which it is held," its submission says.
The BBA declined to comment further ahead of Mr Browne's evidence session.