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 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. 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. 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 $ 320 billion – capital that could otherwise have supported up to $ 5 trillion of lending to households and businesses. but there is a bigger cost. an industry the scale and importance of finance needs social capital as well as economic capital. 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. for example, their capital requirements have increased 10 - fold. and in response these banks have raised over $ 1. 5 trillion of capital in recent years. 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. for misconduct costs see bcg report, “ global risk 2017 : staying the course in banking, march 2017 http : / / www

known to those who consider hiring them. the fsb is now considering whether to adopt such an approach more broadly. the uk ’ s fair and effective markets review ( femr ) recommended that the eu ’ s market abuse regulation should be extended to cover every major fixed income and currency market, that criminal sanctions be updated, and maximum prison terms extended. see : http : / / www. bankofengland. co. uk / markets / pages / fmreview. aspx the pra has introduced requirements for regulated firms to provide employment references to one another in a mandatory template when hiring senior managers. this includes information on an individual ’ s conduct record, and their fitness and propriety. all speeches are available online at www. bankofengland. co. uk / speeches this is all constructive but insufficient. that ’ s why we have emphasised measures to ensure firms and their employees take responsibility – individually and collectively – for their own conduct. these range from securing compliance with minimum standards to a common and dynamic understanding of good practice that is widely understood and collectively enforced. uk authorities have used their convening powers to encourage market participants to establish standards of market practice that are well understood, widely followed and, crucially, that keep pace with market developments. this is what the banking standards board is doing by promoting higher standards of conduct and competence across the uk banking system. it ’ s why the global ficc market standards board ( fmsb ) is establishing readily understood standards for their markets. and it ’ s why the fx committees will launch in may the first globally consistent code of conduct for fx markets. but codes are of little use if nobody reads, follows, or enforces them. this is where the uk ’ s senior managers regime comes in. senior managers regime the smr addresses the common refrain of senior management that they weren ’ t aware that misconduct was taking place in their firms. the smr sets a series of requirements for the most senior decision - makers of banks, building societies and major investment firms. the smr re - establishes the link between seniority and accountability. senior managers are now held accountable if they fail to take reasonable steps ( including training or proper oversight ) to prevent or stop regulatory breaches in their areas of responsibility. and the smr prescribes responsibilities – typically to the chair and ceo respectively – for developing and embedding a firm ’ s culture. under the related certification regime, firms must also annually assess and certi