REUTERS SUMMIT-Rules alone won't halt market wrongdoing - BoE's Bailey

* For other news from Reuters Financial Regulation Summit, click on http://www.reuters.com/summit/FinancialRegulation15

By Patrick Graham and Huw Jones

LONDON, May 15 (Reuters) - Changing rules and codes of conduct will not address the cultural problems in banks' trading arms laid bare by seven years of investigations into market-rigging, the Bank of England's chief regulator said.

Andrew Bailey, head of the bank's Prudential Regulation Authority, spoke to Reuters ahead of the publication next month of Britain's Fair and Effective Markets Review, billed as potentially the last word on efforts to reform conduct at banks in the UK after four years of scandals and fines for market manipulation.

He declined to say what recommendations the review, expected to form the centrepiece of UK finance minister George Osborne's annual Mansion House speech to the City of London (LSE: CIN.L - news) in early June, would put forward.

But senior industry figures say they worry it will generate another round of expensive obligations for fast-expanding compliance departments at banks and trading firms.

"The history of codes has not been covered in glory," Bailey said, adding that neither had "detailed rule-making".

"Codes are always going to be ineffective in a world where people don't feel there is any responsibility. People will put them on the shelf where they will gather dust."

He said the UK's new "senior managers' regime", aimed at making senior bankers accountable for their decisions when things go wrong, would help change the culture at banks.

"There was an important issue... How do we establish a culture in which people at the top of institutions take responsibility for what goes on in their institutions?" Bailey said.

"Initiatives like the Fair and Effective Markets Review are not in themselves saying 'Let's draw a line and forget what happened in the past' but they are a way to say 'Let's try to put the industry in a position where we can be more confident these things don't happen again'."

CODES

Officials at a number of central and commercial banks working on reform of the $5 trillion-a-day currency market have played up the importance in recent months of moves to unify codes of conduct for the industry globally.

The Bank for International Settlements, the central bank for all central banks - said this week it was setting up a working group to draw together the disparate codes run by major central banks.

But other City sources say the work on rules and regulation, which Bank of England Governor Mark Carney has driven in his role as head of the G20's Financial Stability Board, looks feeble compared with the billions in fines handed out to banks over the past year.

"There is a danger that they might try to create new rules and we have tried to discourage that," says Ben Pott, head of European affairs at ICAP (LSE: IAP.L - news) , whose EBS platform has been a central part of the currency market for decades.

"There is a feeling that the work on the codes is not enough and they will need to go further than that. Politically, you probably need to create some structure, something new, where the industry can come together and do more to monitor behaviour and act more quickly."

There are two factors that may limit the scope and recommendations of the British review.

Firstly, officials say Carney is pressing through the FSB for it to become a blueprint for changes globally, which might mean keeping the recommendations easily acceptable to all.

Regulators have said that without international "buy in", the impact of the Fair and Effective Markets Review, which is being conducted by the BoE (Shenzhen: 000725.SZ - news) , the Financial Conduct Authority and Britain's finance ministry, will be limited in such a global market like forex, for instance.

"It is fairly clear that the FSB will seek to adopt it," said Alex McDonald, who sits on a number of Bank of England industry panels as the chief executive of London's Wholesale Markets Brokers Association.

"The BoE team have been doing road trip after road trip, so we know that is one focus."

Secondly, European Union rules already in the pipeline will limit how much new ground FEMR can break.

Earlier this year, Olivier Guersent at the European Commission's financial regulation arm said revisions already made to EU securities laws and due to take effect from 2017 would be a "game changer" for fixed income, currencies and commodities (FICC) markets by increasing transparency, giving more powers to end users and increasing competition.

The EU has already tightened up governance of FICC markets with updated rules on markets transparency, new measures against insider trading and a new EU law on regulating major benchmarks.

"There is relatively little room left," said ICAP's Pott. (Writing by Patrick Graham, editing by Nigel Stephenson and Hugh Lawson)