It also shows the problems they face in deciding which transactions are indeed “appropriate” where the rules of the game in the various markets in which they operate may not be clearly defined, or where the rules are shifting in line with changing standards of what is right or wrong. The global reach of many businesses creates practical problems of control and of enforcement of compliance with regulatory and ethical standards, as the collapse of Barings Bank clearly showed. But these issues also arise in domestic markets as the banks diversify into fee-related businesses such as the sale of insurance and investment management and advice. Leaving aside the possible risks from rogue fund managers, these activities can raise conflicts of interest and the issue of whether particular products are suitable for the needs of their customers. The classic case of how things can go wrong is the recent pension mis-selling scandal in the UK. Hundreds of thousands of employees were persuaded by pension salesmen and the companies they represented (including major banks and insurance companies) to switch from occupational pension schemes provided by their employers into BIS Review 98/1999  2  personal plans provided by the companies. It turned out that in many cases, the employees were much worse off than if they had stayed in their original schemes. The banks and other pension providers stood accused of failing to give their customers suitable advice and sufficient information on the costs and benefits of making the switch.
The board of directors has an important role to play in establishing the overall culture of an organisation. It is also the ultimate body for resolving the type of complex ethical dilemmas I referred to earlier, and ensuring in particular that the reputation risks in new business strategies or products are carefully addressed. I hope that this conference and my speech, have demonstrated that high ethical standards in banks are neither a luxury nor an abstract ideal. Rather, they are a vital aspect of protecting and enhancing the bank’s brand image, and ensuring its long-term business survival. Behaving ethically is not only the right thing for banks to do, it also makes sound business sense. BIS Review 98/1999  4