Internationally, we have catalysed a series of actions at the Financial Stability Board (FSB) that will be presented to the G20 Leaders’ Summit in July. Allow me to review the main elements before concentrating on how codes of conduct and the Senior Managers Regime (SMR) can lift standards and improve culture. Let me be clear at the outset that the Bank of England holds itself to the highest standards. In that spirit, I will extend my remarks to review some lessons the Bank can learn from the events surrounding Charlotte Hogg’s resignation, and the steps we are taking in response. The UK Action Plan to improve conduct  Our action plan for the financial system begins with stronger deterrents. In the UK, important steps have 5  been taken to strengthen laws and regulations, though some gaps remain, most notably in the FX market. But authorities cannot and should not try to legislate for every circumstance, watch every transaction, or anticipate every market innovation. So while fines and sanctions have roles in deterring misconduct, they will not, on their own, bring about the cultural change we need. We must move from an excessive reliance on punitive, ex post fines of firms to greater emphasis on more compelling ex ante incentives for individuals, and ultimately a more solid grounding in improved firm culture. This includes reducing opportunities for bad behaviour, for example, by overhauling the regulation of key benchmarks in FICC markets. More fundamentally, it requires compensation rules that align better risk and reward.
Remarks at the Banking Standards Board Panel “Worthy of trust? Law, ethics and culture in banking” Mark Carney, Governor of the Bank of England  Bank of England Conference Centre 21 March 2017  1  All speeches are available online at www.bankofengland.co.uk/speeches  It is a pleasure to host this Banking Standards Board event “Worthy of trust? Law, ethics and culture in banking” and to join this distinguished panel. Over the past decade, banking has suffered twin crises of solvency and legitimacy. The first is being addressed by comprehensive reforms. As a consequence, large banks are now stronger, more liquid, and more focused. 1  This immense progress has been overshadowed by a crisis of legitimacy. A series of scandals ranging from mis-selling to manipulation have undermined trust in banking, the financial system, and, to some degree, markets themselves. 2  Multiple factors contributed to a tide of ethical drift. Market standards were poorly understood, often ignored and lacked teeth. Too many participants neither felt responsible for the system nor recognised the full impact of their actions. Bad behaviour went unchecked, proliferated and eventually became the norm. The economic consequences have been enormous. Global banks’ misconduct costs have now reached over $ billion – capital that could otherwise have supported up to $ trillion of lending to households and businesses. 3  But there is a bigger cost. An industry the scale and importance of finance needs social capital as well as economic capital.