City banks need same checks as MPs’ expenses
Over the last few weeks, I suspect that the revelations about MPs’ expenses have shocked, disappointed and – in some cases – amused you. The tabloids have had a field day, as have the broadsheets, in particular, the Daily Telegraph. The paper has delighted in writing its front-page headlines in font so huge it is usually reserved for announcing the death of a world leader.
The mood in the corridors of power has been tense and some Honourable Members – somewhat less honourable now, you may feel – admit that they have been caught out with some of their claims. Plasma televisions. Already paid off mortgages. Cat food. Wait a minute. Cat food? In their defence, many of them have promised to pay the money back, but the damage to their – and Parliament’s – reputation has been done; and, crucially, during a time when most taxpayers’ wallets have been hit badly by the recession.
A few miles from Westminster, there have been many red faces, resignations and redundancies in the City of London as we saw last year’s ‘credit crunch’ turn into the worst recession since the 1930s. And I can’t help thinking that, in the same way that we are hearing calls for greater transparency in Westminster and Whitehall, the City’s investment banks and other financial institutions must become far more accountable. And not in the way that enables them to merely pay lip service to those calls. Talk is cheap, as they say.
MPs’ expense scandals destroy more than the reputation of the individual politicians themselves: they damage the credibility of the Houses of Parliament and British democracy itself. In the same way, City scandals reflect badly on the whole financial services sector, not just the companies and individuals involved.
People need to believe that our financial institutions are scrutinised properly, just as they need to believe that MPs’ expenses are policed credibly. This is due, in large part, to the regulators, the FSA and now also the Bank of England. But they alone cannot build the public’s confidence in the financial services industry.
Auditors have a vital role to play – their independence and professionalism is crucial. They must expose the truth, however unpalatable it is. Non-executive directors should also spend more time and intellectual effort scrutinising the decisions of the companies whose boards they sit on. But firms themselves also need to act ethically; to abide by the spirit and not just the letter of the law.
The UK’s financial services will be a different beast when it emerges from the recession. People are clearly angry about the MPs’ expenses scandal, and this anger adds fuel to the head of steam already building up in the City for wide reforms.
Stuart Fraser is chairman of the City of London’s Policy & Resources Committee.