Seven deadly sins: “retrospectivity, culpability and responsibility”

Abstract

Although banks' reputations are uniformly at a low ebb and the costs of misconduct remain high, are all forms of misconduct equally bad? This article suggests that distinctions can be made and that there are different grades of moral culpability (after all, no business is perfect). Seven categories are suggested. Conspiracy to defraud is in the “worst” category whilst it is suggested that (for example) a technical failure to understand the technical requirements of client money rules should attract lees opprobrium. The categories enable a “scoring system” for moral standards to be devised and an example of how this could work is shown in relation to the four main UK banks.

Notes

1 November 2015.This is a revised and updated version of a paper originally published in April 2015.

2 See J O'Brien, G Gilligan, A Roberts and R McCormick, “Professional Standards and the Social Licence to Operate: A Panacea for Finance or an Exercise in Symbolism?” Law and Financial Markets Review (online October 2015).

1 The “social licence” concept is explored by J O'Brien, G Gilligan, A Roberts and R McCormick in: “Professional Standards and the Social Licence to Operate: A Panacea for Finance or an Exercise in Symbolism?” Law and Financial Markets Review (online, November 2015).

2 There were no Case 5 (Individual Criminality) or Case 7 (Individual Reputational Event) allocations of Conduct Costs for the four UK banks during the period. Both cases concern misconduct attributable to individual bank employees. (Although there have been several incidents of this nature relating to UK, or UK-based, individuals, they have not concerned UK banks.) The methodology for conduct costs recording (http://conductcosts.ccpresearchfoundation.com/notes-on-interpretation) limits the capture of financial consequences of bank employee misconduct to fines imposed on the bank as a result of its culpability for/complicity in the misconduct and would not, for example, include the trading losses flowing from the activities of a “rogue trader” (or penalties imposed on that rogue trader).

3 In relation to the above Figure 3, it should be noted that the disclosure and reporting practices of banks in regard to their conduct costs record present various difficulties in ascertaining relevant financial provisions. We highlighted these shortcomings in a proposal for “Greater Clarity in Conduct Performance” published by the CCP Research Foundation here: http://conductcosts.ccpresearchfoundation.com/conduct-costs-reporting. The methodology for capturing conduct cost-related financial provisions is also included within the Project's Notes on Interpretation, available here: http://conductcosts.ccpresearchfoundation.com/notes-on-interpretation.