Pressing the reset button
On a cold winter’s morning back in February, Chancellor of the Exchequer George Osborne delivered a memorable speech where he hailed 2013 as “the year when we reset our banking system”. Osborne pledged that new legislation – the Banking Reform Bill is currently making its way through Parliament – would not just introduce broad-ranging structural reforms across the financial service industry, but new compliance rules that would be rigorously enforced.
Whether or not the coalition government succeeds in implementing all of its proposals remain to be seen but undoubtedly the transformation of the banking sector – across all levels – is most certainly underway, writes John Bowman, managing director and co-lead, education, CFA Institute (right).
As is now well established, the impetus for many of these reforms came with the raft of scandals that emerged from the City of London following the 2007/8 financial crisis. Indeed, in a recent statement the government reiterated the point that the Libor manipulation, payment protection insurance and interest rate swap mis-selling scandals “showed that alongside a widespread failure of competence in the banking industry, there was [also] a failure of professionalism and ethics”.
Something that binds all of these issues together – the scandals, reforms and future outcomes – is the blistering pace of technological change. The success of the UK financial services sector has undoubtedly been linked to its ability to capitalise on technological innovation where other markets have faltered.
Today, however, the challenge is how those responsible for technology in the banking sector can put forward innovative responses to the problem of standards that have emerged post-financial crisis. As the Government has stated, it is particularly these problems that “have done so much to undermine society’s faith in the banking system.”
The opportunity is there for technology specialists to participate in the debate about how future reforms can help reinvent the industry for the benefit of everyone. With this in mind, Mr Osborne’s promise to “reset” the banking system perhaps seems more apt than at first reading.
Equally, this will also mean that policymakers and regulators re-evaluate which people they engage with at banking institutions and why. Information technology professionals have long been inextricably linked to the investment decisions of financial services institutions. Their systems and processes facilitate customer complaint tracking, trading data and account transfers. Therefore they should rightly have a voice when it comes to addressing problems such as transparency, putting client interests first and the loss of public trust.
For too long, those in charge of regulating markets have targeted dialogue and reform with too narrow a subset of the broader industry. Thankfully, this is beginning to change. At CFA Institute, we believe that for the financial services sector to restore trust they must raise the standards of knowledge, education and ethics across all those professions that play a role – not just with those traditionally perceived as being the ones in control. While few professionals within each firm are held to a legal fiduciary standard, we believe all participants in the financial services industry are stewards of a client’s future. We recently launched a new education programme, called the Claritas Investment Certificate, which aims to support that goal for the industry as a whole.
And yet whilst today there are more IT professionals than ever, research shows they receive less training on the industry they serve than other functions. Therefore it is precisely these employees – either in-house or in out-sourced services – who banks should be supporting when it comes to improved compliance. IT professionals working in the financial services industry should be given the opportunity to supplement their technical expertise with an understanding of the industry in which they operate: its systems and processes, its regulatory restrictions, terminology and roles and responsibilities.
Both employers and employees serve to gain from this exercise. For banks, greater levels of financial compliance will mean greater financial stability for the business. For employees working centrally in IT, their role towards helping the business to succeed will be better appreciated by everybody – both internally and externally.
We strongly believe that banks, financial institutions and those who support the financial services industry should be supported with the necessary resources required to address any internal knowledge gap that exists when it comes to ethics and standards. The Chancellor has set the precedent for banks to demonstrate their institutional commitment to ethics. It’s now time for all of us to press the reset button.