Interview: Simon Culhane; Chief Executive of the CISI
SCOTTISH independence is no boundary to improving bank ethics, says CISI chief Simon Culhane.
The boss of the City of London’s top ethics watchdog assures me he is supremely relaxed about the possibility of Scotland voting for independence in two years’ time.
Culhane, chief executive of the Chartered Institute of Securities & Investment (CISI), thinks any vote for separation would have no impact on the organisation’s remit to cover ethics and examinations for those in the entire British financial services industry.
In this, he is more optimistic than CBI director-general John Cridland, who recently mounted a robust defence at the CBI Scotland annual dinner of what he saw as the benefits for his members of Scotland remaining in the union.
Cridland raised nationalist eyebrows north of the Border, but Culhane’s confidence is based on technology rather than economics or ideology.
“I don’t think it [a vote for Scottish independence] would have any effect on us,” he says. “We are a global body. We operate in many different countries so I think it would make no difference at all. It may seem a bit of a ‘soundbite’ but we use technology an awful lot to make geography history.”
He is right in stressing that CISI – this year celebrating its 20th anniversary – has broad horizons. As well as London and Edinburgh, the body has offices in locations including Dubai, Dublin, Mumbai, Singapore and Sri Lanka.
Culhane is speaking a stone’s throw from the towering monument in the heart of the City, put up to commemorate the 1666 Great Fire of London.
However, as a series of banking scandals continues to engulf Britain, from Libor-rigging to billions of pounds of mis-sold payment protection insurance (PPI), it is the integrity fallout from financial scandals that Culhane is constantly addressing. The Only Way is Ethics might an appropriate title for a Culhane television show.
This summer we have had the boardroom bloodshed at Barclays following Libor, with chief executive and chairman Bob Diamond and Marcus Agius both resigning, plus HSBC admitting to money-laundering in Mexico and broad industry compensation for mis-selling swap derivatives to small businesses.
“There’s no doubt we are at a new low in terms of public perceptions of the banks,” Culhane says. “Manipulation of Libor was the bottom of the trough. It was shocking.”
He maintains the shocks of the summer prove that the previous Labour government was wrong in 1997 to make educational and ethical qualifications for investment bankers optional rather than mandatory as part of the now discredited “light-touch regulation”. Retail bankers were more tightly regulated.
He makes clear that CISI will argue this point to the new Parliamentary Commission on Banking Standards, which was established this summer under Treasury select committee chairman Andrew Tyrie MP, to look at the standards, culture and corporate governance of a besmirched banking industry.
Culhane says: “In the light of the summer scandals, it’s hard to see how a rational person would not advocate higher educational and ethical standards for the wholesale banking market. The anomaly in the disparity in [qualifications] between the retail and wholesale banking markets is unsustainable.”
The CISI boss has also in the past called for more transparency in the banking bonus system, saying it is important to know how much the “rainmakers” under boardroom level are earning as well as the top executives. More needs to be done, he says.
“Remuneration is the elephant in the room. It is so out of kilter [with wider society] that people think nothing has changed within the industry.”
This is especially eye-catching coming from a man who went out on a limb a few years back when the financial crisis first broke to say that bankers were being unfairly demonised as part of a “McCarthyite-style witch hunt”.
Unsurprisingly, CISI has also thrown its weight behind moves to make frontline bank workers people who provide financial service to customers again, rather than just chasing sales targets that can lead to mis-selling.
Culhane – who was once employed in the retail side of the bank industry himself – says: “We need a complete change in the retail banking sector in the way products are sold.
“[Frontline] bank staff must not be advisors. I know that thousands of staff hate their role as pushers of financial products. They want to give good financial service.”
However, Culhane confronts head-on the concerns raised by others in the financial services sector that a crackdown on sales targets might eventually entail a justifiable debate on an end to “free” banking as long as an account remains in credit.
“You have got to make banking pay some how. If you are not pushing products, how are you going to balance the books,” he adds.
Culhane says you could also help restore greater ethical behaviour to the financial sector by ensuring that every retail product sold must formally have a “box” saying it meets ethical compliance standards, similar to the guidance now given on packaging of the provenance of food by the big supermarket groups.
“Financial committees have risk committees, remuneration committees, audit committees,” he says. “There is no reason that there should not also be an integrity committee to supervise this.”
Similarly, he reckons that to “embed integrity” into the system there should be annual refresher courses and testing for staff overseen from the top.
Culhane acknowledges all this would have a financial cost and that shareholders would “have to accept there might be short-term pain as banks adjust their business models”.
But he says it would be worth it because even if the banks do all the right things from here on in – a big if – in his view it will be “at least five years” before the reputation of the sector is restored.
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Wednesday 19 June 2013
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