APPG Fair Business Banking speech

UK Finance Chief Executive Stephen Jones, speaking at the House of Commons on 21 January 2019:

Good evening and thank you to Kevin Hollinrake for inviting me to speak to you.

What did you have for breakfast this morning? Porridge? Toast? Cereal? Or did you follow the marketing slogan and ‘go to work on an egg’?

If it was the latter, the chances are it was free range. After all, 60 per cent of the eggs sold in the UK are now from chickens that have some space to roam.

Go back ten years though and more often than not the eggs we bought were from caged hens – only 38 per cent were free range in 2007.

So, what’s changed? Yes, new legislation arrived in 2012 banning battery cages and replacing them with ‘enriched’ ones, but the switch to free range started before then.

And not just through Edwina Currie’s salmonella scare, if you cast your mind back to 1988.

It was a growing number of customers voting with their wallets and choosing the more ‘ethical’ egg even if more expensive, and suppliers opting to deliver just that.

A market in which people are increasingly considering more than just the product they are consuming – and instead thinking about the impact of how that product is produced.

The switch to free range is symptomatic of a wider behavioural change in society.

The traditional capitalist model – or at least the traditional Milton Freedman/Jack Welch version of it whereby the role of a business is simply to generate profits for, and paying dividends to, the providers of its capital – is under increasing scrutiny.
It is how those profits and dividends are generated – the benefit, or indeed any detriment, to other stakeholders – customers, colleagues and the communities in which the business operates – which are now regarded as increasingly important metrics of performance.

For the banking and finance industry this broader scrutiny is just as acute and relevant.

One of the lessons learnt from the financial crisis ten years ago is that firms will be judged not only in terms of the products and services they offer, but also the way in which they are provided. 
The idea that providers of capital – often institutional investors managing the pensions of those with savings – solely favour the rewarding of dividends, share buybacks, and quarterly reporting, over other more sustainable long-term approaches and measures, is untenable.

And so, the APPG’s focus on the social purpose of the financial industry is very timely.

I’m afraid I was unable to join you for the earlier session marking the UK launch of the United Nations Environment Programme Finance Initiative’s consultation on their draft Principles for Responsible Banking, but I trust it went well.
The challenges I’ve set out are not limited to these shores and so the development of these UN principles with a panel of banks from around the world, including a number based or active in the UK, is certainly welcomed.

The principles aim to provide a framework for aligning business strategy and key business decisions to society’s goals as expressed in UN Sustainable Development Goals and the Paris Climate Agreement – and I’ll come on to say more about that later – and relevant national and regional frameworks.

The question of how to address these challenges is also one to which my organisation, UK Finance, has been paying considerable attention.

The fundamental social purpose of the finance industry is clear: supporting the economy and its constituents. Helping a family to buy its own home; creating the payments system which powers e-commerce; providing trade finance and risk management for an exporter entering new markets; supporting people through unexpected life events; driving efficient, transparent and secure financial markets; and enabling a small business to grow.

I know that last responsibility is one which is close to the hearts of many here this evening.

I am not going to address this evening the hard work with our members and small business representatives, including this APPG, we are undertaking to address legacy issues from the crisis.
But I will touch briefly on the topic du jour, Brexit.  As March 29 and our exit from the European Union approaches, banks are committed to supporting viable businesses, especially SMEs, through any potential dislocation in supply chains and short-term issues that may arise over the coming months. And at the same they are ready to fund opportunities for growth that may arise in new markets.

Some banks have already announced the support they are making available – for example RBS has set aside £2 billion to help SMEs deal with Brexit and Lloyds Banking Group has said it will be lending up to £18 billion to businesses during 2019.
As an industry we will be communicating the collective message that SMEs should feel confident of the support of their banks and that they should come forward at the earliest opportunity to discuss their plans and finance needs. As part of this, tomorrow I will be meeting with seventeen different business trade associations to ensure we are coordinated on this important issue.

Beyond SMEs, looking at the wider issue of societal purpose, as the collective voice for the banking and finance industry, UK Finance has been working with a number of our member firms to share best practice in how institutions implement and explain their strategies and long-term purpose.
We have been doing so with the support of a number of long-term institutional investors. For it is clear that capitalism with a long-term focus will in return attract long-term capital and deliver prosperity that is enduring.
The answer begins with culture and conduct. Within banking and financial services, as much regulatory attention is now paid to expectations around financial conduct as to prudential regulation.

The rules introduced after the financial crash are amongst the strictest in the world – the establishment of the Senior Managers and Certification Regime, the re-writing of the Banking Conduct rules and aligning remuneration to the future financial performance of the company.
Combined, these set the tone for personal responsibility for those at the top and the prioritisation of long-term sustainability over short-term gains.

We also need to ensure that colleagues – at all levels across our industry – are from as broad a range of backgrounds as possible. That way we can truly represent the communities that we serve and draw upon all their experiences and perspectives.
For progressive employment practices should be seen as defining a well-run company in modern Britain, and the banking industry ought to be leading the way.

UK Finance is, for example, a proud signatory of the Women in Finance Charter, setting ourselves a target of 40 per cent of senior management positions being filled by women by January 2021, and we have undertaken to promote the Charter’s values within the sector. We are in good company – in total there are now some 300 signatories to the Charter across our industry, representing firms responsible for around 800,000 employees.

And just as employees should reflect the communities we serve, so too should the customer, whether SME or otherwise, be at the heart of every firms’ business model. For not only do people and businesses rely on the services the industry provides, but they also expect those services to evolve to meet their needs and expectations.

We need to reinforce our commitment to serving communities through initiatives such as everyday Banking at the Post Office, whereby personal and business customers of high street banks can access their accounts over the counter at 11,500 post offices.

At same time the world is becoming increasingly digitised. Technology is fundamentally changing the way our industry does business, creating new ways for customers to access their finances and make payments.

But that change also comes with challenges. It is vital that as new products and services are introduced we do not leave anyone behind – particularly those in vulnerable circumstances. I believe that innovation can and should be used as a force for improving financial inclusion, enabling the creation of more bespoke services which can meet more complex needs.

The scale of digital transformation also brings new risks. Customers quite rightly trust their banks as the custodians of their money and their data. Any erosion of this trust would have dire consequences.

So it is vital that we ensure our finance system is resilient to the threat of cyber-attack. We must lead the world in delivering the safest and most transparent place to do business.

UK Finance is taking on this challenge head first, working with the Bank of England, GCHQ and the National Cyber Security Centre to develop the Financial Sector Cyber Collaboration Centre.

The Centre will be capable of addressing cyber threats as they emerge in a faster, more coordinated and effective way, and importantly it will take the practices of the best to a wider group of smaller institutions – for an attack on one is an attack on all.

And finally – climate. The global impact of climate change is well documented and urgent action is required. The industry has the ability to drive a transformation of business practices across the wider economy. Only last week, UK Finance responded to two major consultations on the part of the PRA and the FCA: the PRA on building the management of climate-related financial risks into the supervisory regime for banks and insurance companies and the FCA from more of a market perspective. 

These take the recommendations of the FSB-sponsored Taskforce on Climate-Related Financial Disclosure – the group chaired by Michael Bloomberg at the invitation of Mark Carney – as a starting point and follow-on from steps beginning to be taken by UK Government to bring climate into industrial strategy.

Over 500 organisations have committed to the Taskforce’s recommendations and it is pleasing to see that this includes over 280 financial services firms worldwide, including the six largest UK banking groups [Barclays, LBG, HSBC, RBS, Santander UK and Standard Chartered] and many of the larger overseas banks with a significant presence in the UK – bringing climate considerations more firmly within their core governance and risk management processes.

Action on climate change requires a collective effort from financial services, businesses, governments, households, many other organisations and, dare I suggest, shows political will and determination.
And we shouldn’t think about climate change as a cost on business – if we can get on the front foot, it can also bring opportunities in terms of new jobs, cleaner cities and better infrastructure.

Society’s expectations have changed. Whether it’s buying a free range egg or investing in a nest egg, the impact of our individual – or company – actions are more important than ever.

As an industry, financial services has a duty to focus on its societal purpose. I hope I have shown this evening that this work is well underway, and our commitment to continue to so in the future.
Thank you.