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Milliband’s call to discipline bankers

September 11, 2011

It is interesting to read this morning Ed Milliband’s call to impose a code of conduct on bankers, the breaking of which will lead to individuals being ‘struck off’ and unable to work in the industry. This call puts the emphasis on the idea of banking as a profession, on a par with doctors and lawyers, both of which face strict regulation from professional bodies that monitor and, where necessary discipline their members. The most severe form of discipline being the removal of permission to practice.

Part of what is particularly interesting here is how extreme this move will seem to many observers (particularly those within the banking sector itself). However, there is a long tradition of the idea of banking as a profession – it has long been overseen by professional bodies, bodies which have a role in accrediting members and holding them to codes of conduct (for example the Chartered Insurance Institute, founded in 1873).

Moreover, banking as an activity exhibits many of the features most significant in identifying a profession – bankers have specialised skills and knowledge; they have significantly more knowledge about their activity than clients (and other affected parties) due to the nature of the work; they have often acquired such knowledge and skills through a long period of training and study; and as a result of this specialised expertise, they have gained significant power to affect individual clients or wider society. This last point is nowhere better illustrated than in the effects of the recent crisis.

Seen in this light, Milliband’s idea is, in many ways, not new or novel at all. What is significant is the idea that bankers must be accredited by a professional body in order to practice. Not only would this ensure much greater scrutiny of those working in the industry (many of whom have no affiliation at all), it would also help reconnect the sector as a whole with its roots in a professional activity with a social purpose. For all these reasons such a move would be a good one.

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4 Comments leave one →
  1. Steve Dempsey permalink
    September 18, 2011 11:36 am

    Do doctors and lawyers have statutory bodies overseeing them like the FSA or the Takeover Panel? Can a body similar to the self-regulatory GMC or the Law Society perform the same task? Should it solely be responsible for ‘misconduct’ (e.g., making a decision for personal gain) or can it extend to deciding on risk taking (e.g., making an inadvised decision against the odds)? I know the latter case could be encompassed under a general heading of ‘incompetence’, but, far more than doctors and lawyers, bankers are actively required to take risks. Indeed cautious bankers have been sacked for not ‘maximising’ returns. Should banking managers be required to belong to a professional body, e.g. the chartered institute of management, and be brought to book if their subordinates err through lack of their oversight? What about HR managers who appoint unsatisfactory people into positions of authority?

    I would also like a definiton of banker. Are traders bankers?. Are programmers and analysts who package complex derivatives bankers? Are we talking investment bankers or the modern version of the pin-striped branch manager?

  2. September 18, 2011 11:50 am

    Thanks Dad! I’ve had an initial think about all your points and in general I agree! It is certainly true that the activity of banking is quite different from that of medicine or even law, in part this is because it is an activity undertaken by organisations rather than individuals; in part because, as you say, the acceptance and management of risk (as opposed to its elimination) is a central part of banking activity.

    Thus the aims of the GMC (http://www.gmc-uk.org/information_for_you/10412.asp) which are focused on maximising protection of patients through monitoring of individual doctors look very different to the statutory objectives of the FSA (http://www.fsa.gov.uk/Pages/About/Aims/Statutory/index.shtml) which are much more focused on the performance of the system as a whole and the maintenance of ‘appropriate’ protections.

    So, the activity of banking is going to be a more complex combination of individual activities, coordination of those activities and, related to this, the structural features of the sector (the institutions that exist there and how they work and interact). All these elements are significant and perhaps the break up of the FSA into the Financial Conduct Authority and Prudential Regulation Authority is in part recognition of this.

    Aside from the challenge of separating issues of individual conduct from, say coordination challenges (if such a separation can be made – it may be clear that some individuals, such as the managers you mention, have specific responsibility for coordination), there are other issues with regulating individual conduct – in particular, determining which groups of individuals should be regulated and the standards to which they should be held. While this may be overcome in some instances by imposing judgments on organisations as a whole, I don’t think there is any reason for thinking that we *cannot* impose appropriate standards on individuals across the banking sector. It will just be complex.

    But then this is what the regulator and the professional bodies are for (I don’t think it matters too much how you divide the work between them). Indeed, it seems that some of these ideas are coming out in the initial communications by the FCA (http://www.fsa.gov.uk/pages/Library/Communication/Speeches/2011/0628_mc.shtml), with a greater focus on ensuring fairness, developing a culture of responsibility, and more scrutiny of the judgments of senior management.

    Of course you’re right that the initial position of ‘striking off’ bad bankers is too simplistic, and all these complexities need to taken into account. But the basic idea still strikes me as a plausible one, and drawing the links between banking and the more traditional professions is still a useful exercise.

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  1. Regulating Bankers « Business ethics and other thoughts
  2. Regulating Bankers « Ethics in public and professional life

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