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Institute outreach:
"It's education, not regulation, that changes the world"

After years in which high ethical, technical and professional standards were considered ‘old-fashioned’ in banking, it’s clear that they’re now being heeded again at the highest levels in our industry, says SIMON THOMPSON, Chief Executive of the Chartered Banker Institute.

The professional banking institutes of the world have a crucial collaborative role to play in helping to rebuild public trust in financial services, Simon Thompson tells delegates to the World Congress of Banking Institutes at their biennial conference in the Bahamas.

Working together and engaging increasingly intimately with the international regulatory community, he argues, will enhance the role that education plays in rebuilding public confidence and trust in the industry.

The “5 Rs” – rebuilding capital, reforming regulation, restructuring banks, reducing risk appetite and cutting remuneration – are all clearly necessary, he says, to build more stable, robust institutions. “But by themselves, these are not sufficient. In my view, governments and regulators focus too much on financial capital, and not enough on that other pillar – the human capital on which banks and the banking system is built.

“This is where governments and regulators should be focusing more attention. The culture of the financial services industry depends on the professional knowledge, skills and behaviours of the individuals who collectively comprise the organisation and our industry overall.” A strong culture of ethics and professionalism has to be built from the bottom up.

Regulators, he concedes, often “find it hard to get to grips with ethics – and impossible to define in sets of precise rules”. Indeed, it’s the plethora of precise rules that led to many of the problems besetting the banking industry.

“For the most part, banks have been very good at complying with the rules, and employ large numbers of staff and consultants to ensure compliance. Yet doing things by the rules hasn’t meant that banks were necessarily doing the right things.

“All the rules we created didn’t prevent the almost total collapse of the banking system two years ago. And I’m worried that we’re not learning our lesson, as we draft even more rules to try and prevent the next crisis. Rules designed to bolster capital ratios to make banking safer may make us feel safer, but they create their own incentives both for risktaking and for circumvention.

“That’s exactly why we need to fix the bit the rules gloss over – the human capital on which banking depends, as well as rules for financial capital. And we cannot wait for governments and regulators to take the initiative in areas of ethical, professional and technical competence.

“In the UK, we’re trying to ensure that the Chartered Banker standards of ethics, professionalism and technical competence are embedded throughout banks’ learning and development journeys for their staff, and are adopted as a common benchmark by external training vendors too.

“If we’re honest, over the past two decades or so, those values were seen – particularly in the UK and the US – as being somewhat outdated and old-fashioned, no longer relevant to the ‘new financial paradigms’ being created. Yet it’s now clear that high ethical, technical and professional standards are not old-fashioned, but universal, and are again being heeded at the highest level in our industry. It’s education, not regulation, that changes the world.

Costs of trust

The costs of lost trust in our banks and in our financial services industry are very high. The Bank of England’s Andrew Haldane estimates the direct wealth transfer from the taxpayer to the banks in the UK at £20bn, and in the US at $100bn – approximately 1 per cent of GDP in both cases.

He estimates the cost of lost output to the UK at £140bn; $4trn in the US. And he puts the total value of lost world output at $60tn to $200tn.

And then there are the social costs – the enormous bill the banking industry has presented to society, and which they’re just starting to pay back. “The time for remorse will only be over,” says Simon Thompson, “once trust and confidence in banks and bankers have been restored.”

Contrasts in trust

In the West there has been a collapse in trust in the banking industry in long-established financial centres. In 2009, just 19 per cent of Americans trusted their financial system. Since then, that’s risen only slightly to 26 per cent, according to the most recent Chicago Booth Financial Trust Index.

In the UK, just 25 per cent of people currently say they trust banks – all banks, including those that emerged relatively unscathed from the 2007-08 banking crisis.

In the East trust in banks in several emerging economies has actually increased in recent years according to a KPMG US survey in 2009. Between 2006-09, while trust in banking dropped by 33 per cent in the US, it rose in China from 72 per cent to 84 per cent, and in Brazil from 52 per cent to 60 per cent.

The challenge in these economies now is maintaining these levels of trust: in China, for example, the Fitch rating agency calculates there’s a 60% risk of a banking crisis by 2013.

We’re exporting our expertise

“Many aspects of banking are local,” says Simon Thompson, “but ethical and core professional standards are universal. Embedding them successfully means banking institutes working much more closely together than we’ve done in the past.” The Institute is extending bilateral initiatives on three fronts.

Alignments abroad
The Chartered Banker Institute is helping local sister institutes overseas to develop and align their own teaching and qualifications. Their approaches differ:

Hong Kong: Its professional body is very well established and has a clearly defined relationship with this Institute: it teaches some of our modules so its members can top up their qualifications on an agreed basis to secure an additional award as Chartered Bankers.

Jamaica & the Bahamas: We provide their younger institutes with examination and marking services. They’re effectively outsourcing some of their qualification programmes to us to take their members to Certificate level. We support the Bahamas Institute of Financial Services to deliver its Certified Financial Planner and other examination programmes.

Egypt: The Institute has recently secured a contract to help develop a new introductory and CPD programme from scratch aimed at taking members of the Egyptian Banking Institute to Certificate and Diploma level. We’re waiting for a start date once the current political situation there clarifies. The foundation programme would be compulsory for anyone joining the banking industry and covers potentially more than 10,000 people each year.

Pakistan: The Institute expects shortly to finalise a contract with the Institute of Bankers in Pakistan to revise its main qualification programme. This will adapt our course material for local requirements and align it so that successful students at Certificate and Diploma level will gain awards both from this Institute and from Pakistan’s professional body, which has around 5,000 students going through its programmes each year.

Malaysia: This is another big professional body whose representatives visited our Institute last month in May to explore – like Pakistan – ways of revising their existing programme. In addition, they’re keen to launch a new programme to take students to Chartered Banker level.

European collaboration
Most European countries have well established banking institutes which are typically either part of the training facility of a country’s central bank, or part of the national trading association.

In most, but not all, it’s either compulsory or strongly encouraged for bankers to hold professional qualifications awarded by their institutes. The ‘new’ EU countries tend to have quasi-independent and privately run banking institutes, not unlike the Chartered Banker Institute.

This Institute is a founding member of the European Bank Training Network (EBTN), covering 37 countries. It has developed the European Foundation Certificate in Banking, now held by more than 30,000 individuals, which sets a common introductory European professional standard. The Network is bidding for EU Commission funds to survey banks’ training and education and to recommend improvements.

Chartered Banker MBA
Launched last December, the Chartered Banker MBA programme recruited its first cohort of students in January – 20 students from seven different countries.

There’s a great deal of interest in the programme internationally. At the World Congress of Banking Institutes in the Bahamas, our partners, Bangor Business School, presented the programme to about 30 individuals interested in signing up, and Bangor is recruiting agents around the world for it.

We also have an arrangement with EdExel, a leading education and curriculum provider in England, part of Pearson Group which owns the Financial Times. Some of its international diplomas are aligned with our qualifications. These numbers are currently small, but we’re confident demand for the Chartered Banker MBA will grow significantly.

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