It requires the consent of society in order to operate, innovate and grow. Repeated episodes of misconduct have called the social licence of finance into question. In a system where trust is fundamental it ought to be of grave concern that only 20% of UK citizens now think that banks are well-run, down from 90% in the late 1980s. 4  1  For example, their capital requirements have increased 10-fold. And in response these banks have raised over $ trillion of capital in recent years. 2 There are multiple root causes: (i) market structures presented opportunities for abuse and were vulnerable to conflicts of interest and collusion; (ii) systems of internal governance and controls were incapable of asserting the interests of firms – and society – over those of staff; (iii) compensation packages rewarded short-term returns and ignored long-term value creation and good conduct; (iv) and dearth of personal accountability. 3 For misconduct costs see BCG report, “Global Risk 2017: Staying the Course in Banking, March 2017 http://www.bcg.com/publications/2017/financial-institutions-growth-global-risk-2017-staying-course-banking.aspx. Estimates of the impact on lending capacity are Bank of England calculations. 4 British Social Attitudes Survey (2013). 2  All speeches are available online at www.bankofengland.co.uk/speeches  2  From ethical drift to ethical lift  The scale of these shortcomings is why the Bank of England has been pursuing a series of measures to convert ethical drift into ethical lift. Domestically we are working closely with the Financial Conduct Authority (FCA) and HM Treasury.

Although the SMR is only a year old and we are all learning by doing, there are encouraging signs that it is making a difference. 7  See FSB press release at: http://www.fsb.org/2017/02/fsb-assesses-implementation-progress-and-effects-of-reforms/. Additionally see FSB “Stocktake of efforts to strengthen governance frameworks to mitigate misconduct risks”, forthcoming March 2017. 8 The SMR came into effect on 7 March 2016. Insurers are required to meet similar standards under Solvency II and in future, the SMR will apply to them directly, as it will to other participants in FICC markets. 4  All speeches are available online at www.bankofengland.co.uk/speeches  4  For firms, the SMR is clarifying and improving governance, accountability and decision-making processes. Senior Managers are increasingly focusing on building cultures of risk awareness, openness and ethical behaviour. In the words of one chairman “responsibility for culture has moved to the top of my agenda.”  9  For supervisors, the regime is helping identify weaknesses in governance and accountability, and encouraging the necessary changes. This is particularly true in cases where authority has historically been blurred such as in cross-border banking. Adoption is spreading. Some international firms are voluntarily adopting elements of the SMR’s certification requirements to strengthen their global operations. And the FSB is now explicitly reviewing the merits of such “responsibility mapping”. 10  Recent events  The SMR has also been adopted by the Bank of England. 11  We chose to because our mission demands that  we hold ourselves to the highest standards of governance and accountability.