How to act responsibly

James Dempsey and Tom Sorell have recently published an article entitled ‘how to act responsibly’ in the European Financial Review, which can be accessed via this link.

Report: FinCris Closing Conference at the Shard, London, June 17th 2015

The following report sets out the schedule of the closing conference for the FinCris project which was held at Warwick Business School’s facility at the Shard on 17th June 2015. It summarises the speakers and the subjects they covered and, where available, includes the slides presented and pictures of the sessions.

In addition, under the 1335 session (in which the investigators for the project summarised findings to date), a brief outline of those findings, which was distributed to participants, has been included.

Reform of the UK’s financial sector

Promoting stability, ethics and financial inclusion 

Wednesday 17th June 2015

Warwick Business School at The Shard, 32 London Bridge Street, London SE1 9SG

10.00 – 10.05        Chair’s opening remarks

Lord Turnbull, former Member, Parliamentary Commission on Banking Standards

10.05 – 10.25        From crisis to confidence – financial sector reform since 2007

Discussion of the regulatory and legislative changes that have taken place in the UK’s banking system since 2007 – their impact, unintended consequences and the way ahead for regulation.  

Martin Wolf, Associate Editor and Chief Economics Commentator, Financial Times and former Member, Independent Commission on Banking (2010-2011)

Dr Thomas Huertas, Partner and Chair, Global Regulatory Network, EY

Download (PDF, 414KB)

10.25 – 10.50        Next steps for regulation of UK financial services

Christopher Woolard, Director of Strategy and Competition and Member, Executive Committee, Financial Conduct Authority

Questions and comments from the floor with Martin Wolf, Chief Economics Commentator, FT and former Member, Independent Commission on Banking (2010-2011) and

Dr Thomas Huertas, Partner and Chair, Global Regulatory Network, EY


10.50 – 11.15        Strengthening EU banking sector resilience: Basel III implementation

                                Piers Haben, Director of Oversight, European Banking Authority

Questions and comments from the floor


11.35 – 12.25        Next steps for regulation of UK financial services – taxation, structured investment vehicles and stateless income

What is the case for levelling the taxation playing field between debt and equity financing – and what would be the challenges of enacting a change? What would be the advantages and disadvantages of different approaches to the use of the taxation system as a means of regulation of the financial sector, e.g. the EU’s Financial Transaction Tax (FTT) vs. a Financial Activity Tax (FAT) vs. extending VAT on financial services? How will the Eurozone FAT impact the UK? What would be the impact on the UK’s international competitiveness of altering taxation policy? What are the emerging options for regulators to address ‘structured investment vehicles’ and other ‘off-book’ schemes? What can be done to counter financial institution’s ‘stateless’ income? With its significant contribution to the UK economy is the financial sector too important to regulate fully?

Fergus Harradence, Deputy Director, Corporate Tax, Business and International Tax Group, HM Treasury

John Vella, Associate Professor, Centre for Business Taxation, University of Oxford

Rob Fontana-Reval, Head of Tax & Fiscal Policy, CBI

Questions and comments from the floor

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12.25 – 12.30        Chair’s closing remarks

Lord Turnbull, former Member, Parliamentary Commission on Banking Standards

13.30 – 13.35        Chair’s opening remarks

Rt Hon David Davis MP


13.35 – 14.00        Responsibility, taxation and financial exclusion after the financial crisis’

Perspectives from the FinCris research project on the ethics and culture debate as well as discussion on the implications to society and regulation of the financial crisis.

Professor Tom Sorell, Professor of Politics and Philosophy, University of Warwick

Professor Karen Rowlingson, Professor of Social Policy and Director, Centre on Household Assets and Savings Management (CHASM), School of Social Policy, University of Birmingham

Professor Andy Mullineux, Professor of Financial Economics, Bournemouth University

Questions and comments from the floor

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14.00 – 14.10        Improving banking standards: a practical approach

Alison Cottrell, Chief Executive Officer, Banking Standards Board


14.10 – 15.00        Roundtable: a way ahead for ethics and culture

What are the emerging ways for regulators and financial institutions to ensure ethical standards within the UK financial services? Do the financial rewards for profit making within financial institutions affect ethical decisions? What has been the discernible impact, if any, on the day to day operations within the banking industry of regulatory change? What lessons are being taken forward from the LIBOR rate fixing for future approaches to prevent and address unethical behaviour and encourage those with knowledge of practices to speak out? With unethical behaviour within financial institutions often, rightly or wrongly, cited as an underlying cause of the financial crisis, why have so few individuals been held to account? Is the approach from Metrobank and Handelsbanken able to be replicated across the financial services sector – what would be the impact on the UK’s global competitiveness? 

Philip Augar, Author and Independent Non-Executive Director, TSB Bank

Ed Mayo, Secretary General, Co-operatives UK

Nitin Mehta, Managing Director, CFA Institute

Philippa Foster Back, Director, Institute of Business Ethics

Questions and comments from the floor with Alison Cottrell, Chief Executive Officer, Banking Standards Board


15.00 – 15.25        Coffee

15.25 – 15.45        How do we make sure financial markets work for society, not just the few?

Mick McAteer, Director, Financial Inclusion Centre and Non-Executive Director, Financial Conduct Authority

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15.45 – 16.25        Addressing financial exclusion – balanced risk, short-term credit and the role of Government, regulators and industry

Has the increased regulation of the financial sector exacerbated financial exclusion? What should be the role of Government and regulators, if any, in promoting financial inclusion? How can financial service providers balance risk while promoting financial inclusion? How far are the symptoms of financial exclusion rather than the causes being tackled? Are short-term credit providers offering a safety net for those in society excluded by the banks? What are the likely consequences to society of the FCA ‘cracking down’ on short-term credit providers? In the context of concerns about short-term credit providers, what are the alternatives?  

Mark Lyonette, Chief Executive, Association of British Credit Unions Ltd (ABCUL) and Cornerstone Mutual Services

Caroline Barr, Panel Member, Financial Services Consumer Panel

Questions and comments from the floor with Mick McAteer, Director, Financial Inclusion Centre and Non-Executive Director, Financial Conduct Authority

Download (PDF, 718KB)

Download (PDF, 169KB)

16.25 – 16.30        Chair’s and FinCris’s thanks and closing remarks

Upcoming FinCris Dissemination Events

Following on from our recent event at The Shard, London, we are pleased to announce three further events that we will be attending / organising:

Society for Business Ethics Annual Meeting, Vancouver, 6th-9th August, 2015

Tom Sorell and James Dempsey, together with David Silver (UBC) and Jeffrey Moriarty (Bentley) will be presenting essays from the collection on ‘Responsibility and the Financial Crisis’, edited by James Dempsey and Tom Sorell, in a panel session at this event.

New York, 18th September

On Friday 18th September we will be holding an additional dissemination event focusing on outputs from all three streams of the project in New York.

Brussels, 3rd December

We will hold another dissemination event in Brussels on Thursday 3rd December.

Anyone interested in attending these events, please contact us for further information.

FinCris Project Extension

We are pleased to announce that the timescale of the FinCris project has been officially extended from the end of June to the end of December 2015.

This extension will, amongst other things, allow us to engage in further dissemination activities, which will include:

  • Presentation of essays from the collection on ‘Responsibility and the Financial Crisis’, edited by James Dempsey and Tom Sorell, at the annual meeting of the Society for Business Ethics. This meeting will take place in Vancouver in August;
  • An additional dissemination event focusing on outputs from all three streams of the project, in New York in September;
  • Another additional dissemination event in Brussels in December.

This additional dissemination activity follows on from an event we held on 17th June 2015 at Warwick Business School’s facility at The Shard, London. News of this event will follow shortly.

“Steve Hilton is right – the public have a right to hold leaders accountable, part of which involves influencing how they are remunerated”

James Dempsey is a Research Fellow from the Politics and International Studies Department at the University of Warwick. His work focuses on the financial crisis and James is currently developing a theory of responsibility for the financial crisis that explains which individuals and institutions can be held accountable, and why, and the implications of these conclusions for obligations that arise out of the crisis.

He said:

“In an interview with the BBC today David Cameron’s former director of strategy, Steve Hilton, has said that the bosses of large banks should be paid no more than £100k to £200k a year, the same as senior civil servants. His reasoning is that any company that is so important to the economy that it would require a state bailout if it was at risk of failure should be considered part of the public sector, and so be subject to public control. Read more »

Workshop Summary: How can we increase responsible lending and borrowing?

How can we increase responsible lending and borrowing?

Tuesday 28th April 2015

Wellcome Collection, London

Panel session 1: What impact have recent reforms of high cost, short term credit had on levels of responsible lending and borrowing? What should be a priority for action here?

Russell Hamblin-Boone – CFA

Russell suggested that the High-Cost, Short-Term Credit (HCSTC) and specifically payday lending market has been transformed by recent FCA reforms. CFA members have been ‘hit hard’ by the regulation introduced in April 2014 and Read more »

New report: introducing a time delay on access to credit

Jodi Gardner, Lindsey Appleyard, and Karen Rowlingson have written a new report on the potential effects of introducing a time delay on access to credit, particularly payday lending.

This report was produced for the Archbishop’s Task Group on Responsible Lending and Savings, and can be found HERE.

Response to the Financial Conduct Authority (FCA) Consultation on Payday Lending

Karen Rowlingson, Lindsey Appleyard and Jodi Gardner have written a response to this consultation, which can be found here:

Impact of capping the cost of payday lending in the UK – report for the FCA

Karen Rowlingson, Lindsey Appleyard and Jodi Gardner have written a report for the Financial Conduct Authority on the potential impact of capping the cost of payday lending in the UK.

A copy of the report can be found here:


The Ethical Failures of the Cooperative Bank

Tom Sorell and James Dempsey

In the aftermath of the financial crisis, the Cooperative Bank might have been seen as a potential model for the future of banking. Not only had it apparently emerged from the crisis largely unscathed, but – as the self-styled ‘ethical bank’ – it seemed to understand the public hostility towards a lack of ethics in the sector. A few short years later, the image of the Co-op as exemplary bank has been badly tarnished. A £1.5bn black hole was discovered in its balance sheet, and 70% of the business was subsequently sold to investors led by American hedge funds. The appointment of Paul Flowers – dubbed the ‘Crystal Methodist’ by the media – as the bank’s Chairman, and its involvement in scandals such as PPI misselling, have further taken the shine off the ‘ethical bank’.

What has gone wrong?  First, there is something both imprudent and pretentious about organisational claims to a distinctive ethical status. A bank which proclaims its integrity is likely to look worse if its employees do wrong or if it employs common commercial tax dodges than if it had made no claims for itself in the first place. But second, to claim to be an ethical bank is to claim to be, among other things, a bank, and some perfectly routine banking activity may seem morally questionable.  Offering credit cards or loans to people who will have difficulty repaying is an example.  Selling highly profitable but unpredictably expensive financial products e.g. credit default swaps is another.  Another aspect of being a bank, at least in a highly sophisticated financial services market such as one finds in the UK, is that there is competitive pressure to engage in high-risk activities and to offer huge salaries and bonuses. This means that it is hard to insulate the image of even a would-be ethical bank from the culture of the fat cat and the understandable resentment this draws from the general public after the bail-outs of RBS and Lloyds.

The Co-op has tended to be banker to public sector bodies and charities, and to individuals who support and are sometimes employed in both of these sectors. The values of this clientele have been adopted by the bank in its marketing. On its webpage it proudly states that it is ‘still unique in being the only UK high-street bank to have a customer-led Ethical Policy’. This is fleshed out as follows:

‘Our unique Ethical Policy covers five key areas: Human Rights; International Development; Ecological Impact; Animal Welfare; and Social Enterprise. In line with our customers’ ethical concerns, we restrict finance to certain business sectors or activities, while at the same time committing to provide finance to those organisations making a positive community, social and environmental impact.’

But the Co-op is not alone in the business world in claiming to value human rights and the environment. It has this in common with the Bodyshop, for example. Nor is it the only bank, or even the only UK high-street bank, that has a profile in helping International Development – Barclays has a number of microfinance ventures in Africa and was also a charter member of the Business and Human rights movement. What makes the Co-op distinctive is its combination of UK public sector connections and its connection with the co-operative movement at large.

A co-operative is basically an organisation that produces or distributes something for the benefit of all its members, and that is run according to rules that all members can agree to. Co-operatives, then, have both egalitarian and democratic features.  To that extent co-operatives are ethical. On the other hand, to the extent that co-operatives can be formed for commercial purposes, there is no necessary restriction on what they can do or produce. For example, there is no tension in the idea of a co-operative whiskey or gun-manufacturer, even though ethical investment funds often steer clear of weapons and armaments.  On the other hand, there might be a tension in the idea of a co-operative business that aimed at the replacement of its workforce by robots, or that had dismissal policies that employees universally disagreed with. Co-operativeness tends to empower worker-members who are otherwise insecure or saver-members who otherwise have little buying power individually. It may be an ethical form of organisation, but only with respect to the promotion of some quite narrow ethical concerns.

Ironically, it may be in the cooperative mode of organisation, supposedly at the heart of its ethical impetus, that the seeds of the failure of the Co-op can be found. In his scathing report on the ‘manifestly dysfunctional’ governance of the group, Lord Myners criticises the lack of experience and shared purpose of Directors who are elected through a series of regional and area boards. One unnamed Director summed up the conflicting aims of board members: ‘Some want a dividend, some want low prices, some want to do social good and some want free range chickens’. A focus on ethical issues which are largely incidental to the business can a critical failing in a Director, and perhaps even an ethical failing, since business failure is directly damaging to the welfare of depositors, investors ,and employees

The details of failures at both the group level and at the bank in particular are well documented by Sir Christopher Kelly in his review of what led to the Co-op’s capital shortfall. He identifies nine major factors responsible for this gap:

(i)                  The economic environment;

(ii)                Increasing capital requirements imposed on banks in general following the financial crisis and on the Co-operative Bank in particular as a consequence of specific issues that it needed to address;

(iii)               The merger with the Britannia Building Society in 2009;

(iv)              Failure by the Bank after the merger to plan and manage capital adequately;

(v)                Fundamental weaknesses in the governance and management of risk;

(vi)              Material capability gaps, leading to a serious mismatch between aspirations and ability to deliver;

(vii)             Past mis-selling of payment protection insurance (PPI);

(viii)           A flawed culture;

(ix)              A system of governance which led to serious failures of oversight.

Of these he suggests that all apart from the first, and to some extent the second, were within the Coop Group’s, or the bank’s, control. That is, they all represent failures, and perhaps ethical failures. The episode surrounding Paul Flowers’ tenure as Chairman of the bank is just the most bizarre example of the consequences of basic business failures; the capital shortfall is a more general and far-reaching factor.

The Co-op bank has been caught between three distinct sets of ethical concerns: those encapsulated in the (perceived) values of its customers; those inherent in the democratic and egalitarian system of co-operative organisation; and those that stem from the basic obligations that any business has to its owners, employees, customers, and other stakeholders. An ill thought through implementation of the co-operative mode of organisation, and a naive focus on promoting the values held by customers, has led to a failure to fulfil the most basic requirement of promoting (or at least protecting) the interests of the groups most closely related to, and dependent on, the business.

Do the troubles at the Co-op suggest that there can be no such thing as an ethical bank? We think not. Ethical banks are possible; what might they look like? One way to answer this question is by focusing on typical bank stakeholders who are most vulnerable to financial meltdown. These will typically be small depositors or small businesses holding loans.  These are the groups who are closer to losing everything if they are sold risky financial products, and sometimes the groups whose financial know-how is relatively slight. An ethical bank needs policies of communicating risks to these croups with crystal clarity, and even for making members of these groups ineligible for the riskiest products. These policies could be enforced with internal policies for punishing misselling e.g. payment protection insurance or for raising credit card credit limits.

Another measure of the ethical behaviour of banks is how they deal with people who are excluded from banking services – secure savings accounts, insurance, loans, and financial planning — by unemployment or poverty. The class of the “financially excluded” is bigger in countries without welfare states than in Western and Northern Europe, but even in Western and Northern Europe there is a big and growing clientele for financial services outside the conventional banking sector. Pay-day loan companies demand little evidence of credit-worthiness before transferring funds to credit applicants, but this kind of undemandingness is more than counterbalanced by huge interest rates. In these settings there is a need for financial services firms that allow creditworthiness to depend on more than crude credit scoring, and that extend loans at much lower interest rates based on detailed interviews with clients. What emerges from these interviews is a sense of the loan applicant’s general reliability, and of the way personal assets other than income –a determination to work and to keep promises—can be a better guide to repayment than income from employment. An example of a firm that provides deeply personal banking to the financially excluded is Fair Finance, based in London. This and other banks for the financially excluded are not household names. But their relative lack of profile should be reassuring.  Ethical banks shouldn’t – morally shouldn’t – claim to be ethical.  Some things should be shown and not said. The Co-op Bank got this the wrong way round.