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If self-regulation has failed, why is FINSIA trying?

by Caroline Falshaw A FIN | 09 Feb 2018

In this royal commission year, and possibly election year, with APRA’s independent review of CBA ongoing, and low consumer trust in banks, self-regulation has come under fire. However, it has an important and continuing role to play — particularly, as in FINSIA’s approach, if self-regulation focusses on the individuals who make up the industry as well as the institutions they work for. 

In a recent article about the incoming Banking Executive Accountability Regime (BEAR) Professor Michael Adams and co-authors declared that the industry’s approach to self-regulation, epitomised by the ABA Code of Banking Practice was not enough to restore consumer trust. The Code failed to instil consumer confidence and deter scandal, in the authors’ view, because the ABA Code’s emphasis is on voluntary engagement by member banks, rather than robust enforcement mechanisms for breaches of the code. 

And, even if the ABA Code were enforceable, Adams writes that “Australia’s bankers are not in a position to be professionalised”. This statement will come as a shock to the nearly 70% of respondents in the FINSIA Member Survey who agree that professionalising financial services will raise levels of confidence in the industry.

Here Adams and his co-authors cite, with approval, a 2017 research paper by Professor Dimity Kingsford-Smith et al titled ‘Banking and the Limits of Professionalism’, which analyses the obstacles to banking being recognised as a profession. 

The Kingsford-Smith article discusses two hurdles banking’s quest to professionalise — the complexity of banks, and remuneration of bankers. Banks’ complexity is seen in institutional size and structure, with bank regulation focusing on the entity, not the individual (although the implementation of the BEAR will shift this). Sales-driven remuneration and ultra-high salaries linked to profit targets are singled out as being inimical to banking been seen to exert a public interest purpose. 

And here is the rub: a cornerstone of traditional professions such as law or medicine is their public interest purpose. While the question of what a profession is, is the subject of some debate Australia’s Professional Standards Councils suggests that what sets professions apart is:

  • ethical standards,
  • a widely recognised body of learning, that is 
  • applied in the interests of others.

One of the central difficulties for banking is articulating how bankers apply their skills for the benefit of others. While industry regulation and voluntary codes refer to client or customer best interests, and these are a step in the right direction, these ultimately are duties to act in commercial interests that don’t compel individual commitment to standards of ethics and conduct for the benefit of society.

So far, the individual — their expertise, the standards of ethics they adhere to, their duty to society at large — has not had the attention it deserves. FINSIA’s professionalisation initiative centres on the individuals who make up the industry — by building industry consensus on the standards of competence and conduct that bankers at all stages of their careers should adhere to, backed up by professional qualifications.

Professionalisation may seem like yet another issue for the industry to tackle, but the effectiveness of BEAR will depend on the extent to which individuals are willing to be held to account. Accountable individuals need to be suitably qualified to discharge their duties, and so too do the pipeline of future industry leaders. To respond adequately to the Royal Commission, and restore community trust in banks, ethics and expertise need to take centre stage. 

For these reasons, self-regulation, through professional communities, still matters. 


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