A moral compass for banking

Talking about best execution and stuff today, we got into a debate about whether banks were worried about trashing the trust of customers or were concerned about changing behaviours.

My response is that banks aren’t that bothered about trashing trust of retail customers as retail customers don’t make them money. The mass deposits of itsy-bitsy retail accountholders is just something they do to try to cross-sell profitable services, such as mortgages, credit cards, loans, insurances and more.

However, there is a view that the moral compass in banking has been lost and that banks might emerge in the 2010s to focus upon a moral ruleset for their services.

What’s a moral ruleset?

A set of agreements that are promises to customers, both commercial and retail.

The moral ruleset may say that we promise not to invest in A, B and C, where A, B and C represent things the bank finds morally reprehensible. That might be firms that supply arms to developing nations dictators, organisations that support animal vivisection or businesses that promote vices such as pornography, gambling and alcoholism.

These rulesets are published publicly and can be challenged for proof at any point.

This part is nothing new as banks such as Triodos in the Netherlands and Co-operative in the UK already operate such principle-based banking.

My point however is that, as the 2010s evolve and banks realise they have to establish some form of trust base, as retail customers are also commercial customers when they walk into their offices. Equally, there has been a call from some bankers, such as Stephen Green when he was Chairman of HSBC, to bring back a moral compass into banking.

So the idea is that the Triodos and Co-operative model becomes mainstream for all banks.

A moral code, ruleset and structure that is publicly aired, demonstrated and proven.

But it goes further than this as it forms part of a best execution program.

Best execution, in an equities trading context, means that the bank has a contract with the customer where they promise to trade an order in the fastest speed, lowest cost, best price and most likely expectation of settlement.

Under this new moral code, best execution would also include a caveat that the deals are processed within the customers’ moral code requirements.

If the customer wants a trade done without any organisation or business being involved that trades in armaments, defence, missiles or warfare, then they can add that to their moral code.

A bank must then be able to demonstrate to the customer that the individual’s moral code is being adhered to upon demand, and this could add a further layer of complexity but also trust to the business of banking.

Someone then asked me how the hell you could prove that? It sounds like a lawyer’s payday!

We considered this reaction for a minute or two, before several folks rebuffed the comment by claiming that banks will be naked and any breakage of moral code will be leaked.

Roll on wikileaks for bankers breaking their morals.