was low. just as multiple forces caused the deterioration of conduct, multiple actions will be required to achieve the kind of “ ethical lift ” we want to see in the financial markets of the future. as an example, the fair and effective markets review conducted by the uk authorities concluded that action was needed on various fronts including : see sterling seagrave bank of england staff calculations. see european central bank financial stability review may 2016. the sample covers the 22 global systemically important banks ( g - sibs ) and four non - g - sibs. legal costs include damages, fines, settlements and litigation. the analysis relies on data based on regulatory, bank and law firm notices, as well as data obtained from banks ’ annual reports. bank of england staff calculations. the fair and effective markets review : final report can be found at : http : / / www. bankofengland. co. uk / markets / documents / femrjun15. pdf. all speeches are available online at www. bankofengland. co. uk / publications / pages / speeches / default. aspx measures to ensure individual and collective accountability for misconduct in firms – eliminating the ability of senior management to absolve themselves of any responsibility for bad behaviour on their watch ; aligning conduct and incentives so that excessive risk taking and short - term gains do not reap financial rewards ; bringing industry together to produce market standards and promote adherence to best practice ; tougher punishments for misconduct and making it more difficult for “ bad apples ” to roll to other firms. a full progress report on the implementation of these recommendations was published in july 2016. what are some of the broader lessons for other countries from that experience? ‘ hard law ’ and ‘ soft law ’ we cannot expect misconduct to never occur in financial markets – history has taught us that there will always be individuals prepared to do the wrong thing if there is a reward. but we can reduce the frequency and severity of misconduct and we can increase the likelihood that it will be detected and punished. given how quickly financial markets evolve and the practicalities of regulation, this can best be achieved by a combination of ‘ hard law ’ ( legislation and regulation by the official sector ), ‘ soft law ’ ( codes and standards defined collectively by market participants ), and culture ( norms and practices created by firms ’ boards and management ). the authorities obviously have a role to play. regulators must introduce rules and regulations to enforce minimum standards of conduct, hold individuals to account for

their actions, and put in place incentives to promote good conduct. but hard law is not enough. even in jurisdictions with a preference for ‘ hard law ’ solutions, issues of interpretation and norms arise. regulators cannot police every market practice, especially in fast moving markets, nor can they dictate a firm ’ s culture. however, authorities can use their convening power to bring together market participants to solve collective action problems, set expectations on behalf of broader society about expected behaviours and provide incentives to encourage adherence to voluntary market standards. this is where industry leadership is vital. an important complement to actions by the official sector are efforts by market participants to create soft law : aspirational standards that are higher than the regulatory minimum and encourage ongoing behavioural change. market participants are best placed to lead in the development of standards and codes which address real conflicts of interest within a given market place. such standards are widespread in many professions and are increasingly being used in the financial sector. adherence to such voluntary standards can be encouraged through peer pressure, transparency, kitemarking, and the fair and effective markets review : implementation report is available at : http : / / www. bankofengland. co. uk / markets / documents / femr / implementationreport. pdf see jay cullen ( 2016 ) and david rouch ( 2016 ). all speeches are available online at www. bankofengland. co. uk / publications / pages / speeches / default. aspx enhancing business opportunities through compliance. the official sector can also help enhance the effectiveness of soft law by engaging actively with the process and with the organisations that develop standards and industry norms. the treasury market practices group, sponsored by the federal reserve bank of new york, is a good example of market professionals coming together to supporting the integrity and efficiency of the treasury, agency debt and agency mortgage backed securities market. in the remainder of my remarks, i will set out what we have done in the uk to try to reverse the tide of misconduct, focusing on the role of hard law and soft law in shaping conduct and culture in the market as a whole. my colleague james proudman, the executive director for uk deposit takers at the prudential regulation authority, will talk later about the role of supervision in influencing conduct at the firm level. governance and accountability as cases of misconduct were uncovered, too many senior managers pled ignorance about the unethical practices that were taking place on their trading floors. in response, the