20 Pages Posted: 14 Apr 2016
Date Written: April 7, 2016
Because of the Budget 2016, the chancellor has been accused of “looking more like Gordon Brown as a purveyor of catchy gimmicks.” In difficult times when calls for his resignation over the row regarding the budget seemed to have eclipsed everything else, the rare bit of good news for George Osborne is that he can use the opportunity provided by the threat of Brexit – “a leap in the dark” which may cost the UK £100 billion or 5 per cent of GDP and 950,000 jobs by 2020 – to camouflage and obfuscate the real problems of conduct in the world of economics and finance.
In an important interview with Charles Moore, the former Bank of England governor Mervyn King warned that lenders have not stopped taking excessive risks with savers’ money and the result is “bankers have not learnt the lessons of the Great Crash”. Equally, in his new book, The End of Alchemy, King calls banks “the Achilles heel of capitalism”. Reviewing Professor Lord King’s concerns, I sketch emerging issues in the intersecting themes of economics, law and politics as seen in the media, especially through the lens of “conduct costs” – other overlapping themes are also explored. The case of Barclays, which is said to suffer from “an identity crisis”, is examined in some depth.
My analysis is anchored in a recent lecture titled The Cost of Trust Gone Wrong – $300 Billion and Counting where issues related to the “rebuilding of trust agenda” are highlighted. Roger McCormick and Chris Stears point out to members of the Chartered Institute for Securities and Investment that until 2012 recklessness and negligence used to be associated as banks’ conduct related failings rather than cheating, lying and fraud. As argued in the lecture, it was known for years that PPI “stinks” but the bigwigs in banks such as the Royal Bank of Scotland felt “we can’t be the first to stop”; in other words, “we don’t care”. Aided by this analysis, I explore ethical dilemmas and conduct and technology related themes in the wider arena of banking and financial services. Identifying new directions for future research, I conclude the CCP Research Foundation is an expanding new social movement with considerable scope for changing banking for good.
This paper also sheds light on HSBC’s dealings with Syria’s corrupt Makhlouf family as revealed by the Panama Papers, which essentially affirm past fears and point to the wholesale abdication of ethics in the banking sector. The wider political ramifications of the leaked documents are also discussed, as are the activities of the FCA in that regard; the City watchdog has given the banks until 15 April 2016 to report on the extent, if any, of their involvement and links with Mossack Fonseca or firms serviced by them.
The corporate sector has a poor reputation but Mark Carney strangely declared last year (2015) at Mansion House that “the Age of Irresponsibility is over”. However, on proper analysis, the plain truth is that the authorities keep trying to bottle up earlier scandals but new ones constantly keep arising making it impossible for regulators, and even courts, to remedy all the awful things that go on behind the scenes. In the event regulators take action by imposing further penalties on the banks for their involvement in the Panama Papers’ scandal, such regulatory disciplining will inevitably provide further fertile ground for expanding the scope of the conduct costs centred analysis contemplated by the CCP Research Foundation’s “league table” approach to reforming the banking sector.
Accused of “hypocrisy”, even prime minister David Cameron is under serious pressure from the fallout of highly damaging revelations in the Panama Papers which show he profited from his father Ian Cameron’s offshore company Blairmore Holdings Inc. Taunted that he “misled the public” and “lost the trust of the British people”, Cameron is feeling the heat and a taskforce under the aegis of HMRC, NCA, SFO and the FCA is expected to assess the legality of his financial affairs.
Keywords: Banks, Barclays, BoE, Brexit, Conduct Costs, CCPRF, DoJ, DPA, Executive Pay, FCA, Fintech, Fraud, HSBC, LOLR, Lloyds, Markets, Misconduct, Mis-selling, Panama Papers, PCBS, PFAS, PPI, RBS, Santander, SMR, Wells Fargo, UK, US
Suggested Citation: Suggested Citation
Khan, Asad Ali, Changing Banking for Good: Counting the Costs of Market Misconduct (April 7, 2016). Available at SSRN: https://ssrn.com/abstract=2760698