In the Fair and Effective Markets Review Final Report of June 2015 ("FEMR"), published by HM Treasury, the Bank of England, and the Financial Conduct Authority, it is suggested that:
“...increased public awareness of firms' conduct --both good and bad-- may...help to align incentives of executives, shareholders and other investors, not least by bringing competitive pressure to bear. Currently, there are challenges in collating data on fines in a consistent way. Fines are published in different ways by different regulators, and firms are under no obligation to disclose conduct costs, often aggregating fines with other legal costs in their annual reports. Greater clarity in reporting by firms would help shareholders monitor progress on conduct issues.” (p.72) (our emphasis)
This statement echoes some of the key concerns that underlie the CCP Research Foundation's Conduct Costs Project (partly describing the reason for the project's existence). The FEMR’s proposal for "greater clarity in reporting" of conduct costs as part of the solution to the bank conduct problem is, of course, supported by the Conduct Costs Project (whose work is an attempt to provide that greater clarity).
The FEMR have stated clearly that, as a “priority”, firms should explore “the scope for greater transparency over conduct...including better disclosure of fines” (Box 18, p.78). The CCP Research Foundation, in association with ShareAction, suggest that this exploration starts with the proposal detailed here, specifically a “Conduct Costs Report”.
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Roger McCormick, Managing Director of the CCP Research Foundation remarked:
“We have already raised these issues with a small number of banks but the response, so far, has been disappointing. Now that the need for better reporting --and greater clarity-- has been taken up by FEMR, we hope that the issues and ideas referred to above can be removed from the "back burner" and taken seriously. We shall be continuing to invite banks and their investors to develop their thinking in this area with a view to tabling more concrete proposals by the end of this year. There is much talk of better "standards" in banking. Here is a good opportunity to make a positive start in a discreet area where the issues to be addressed are straightforward and solutions should not be hard to find.”
Catherine Howarth, Chief Executive Officer of ShareAction added:
“It's a sad fact that millions of British pension savers are worse off thanks to the extraordinary quantum of conduct costs in the banking sector that has been passed along to shareholders including pension schemes. It's positive to see the Fair and Effective Markets Review honing in on this problem as well as the common sense solution of requiring greater clarity in reporting of conduct costs. Institutional investors holding banking stocks could usefully be more proactive in their support of improvement to the reporting of conduct costs, and we hope to see this happen in the coming six months.”