The Banking Industry has had more than its fair share of knocks recently …

• the scandals around LIBOR rate rigging, which resulted in Barclays being fined £290m by the regulators and the resignation of its Chief Executive, Bob Diamond;
• the mis-selling of financial products such as PPI, the impact of which is measured in £Billions, with Lloyds Bank alone provisioning more than £4Bn against PPI mis-selling, and
• the concerns over inadequate anti-money laundering controls, which could cost Standard Chartered more than £600m in fines.

Each of these wrongdoings has contributed to a lack of trust throughout the banking industry.  The worrying fact is that whilst these concerns have only recently come into the public eye, they have stemmed from activities that have taken place over the last decade – longer in some cases. 

So how many more revelations have yet to come to light and is it possible to rebuild the lost trust?

Rebuilding the trusted bank

The Independent Commission on Banking (ICB), which sets out plans to fundamentally reform the structure of banking in the UK through ring-fencing critical banking services, increasing banks’ capacities to absorb losses and establishing more effective competition in the banking sector, poses a number of challenges that still need to be addressed.  These include the character and extent of separation, which will dictate the speed with which the proposals can be implemented, and the impact these will have on funding and returns.  These are big issues and will determine how successful these wider changes will be in achieving the fundamental objectives of promoting competition and ensuring that the needs of banks’ customers and clients are efficiently served. 

However, it seems to me that too many factions are quick to criticise these ICB recommendations many of whom are calling for a more radical overhaul along the lines of the Glass-Steagall Act (which prohibits commercial banks from engaging in the investment business) and hopefully the HM Treasury’s consultation paper*  will help to achieve convergence.   The banking industry needs to move forward and establish the structural changes for lasting reform and build the solid foundations upon which the much needed changes to governance and transparency can be established.  The more agile banks that transform their businesses swiftly and fulfill their customer commitments to provide enhanced services with greater transparency will be amongst the first to benefit from a new, more trusted banking industry. 

I am sure we haven’t seen the last of the banking scandals and the ICB proposals will not solve all the problems in the banking industry, however, by taking the right steps now will at least allow the banking industry to start on the road to rebuilding the trusted bank.

Geoff Ambrose, Independent Banking Consultant (Change, Compliance and Payments)

*The HM Treasury consultation paper sets out the UK Government’s proposals for taking forward the implementation of the recommendations of the Independent Commission on Banking (ICB).