Roger McCormick and his colleagues in what is to become the ‘CCP Foundation’ (see have produced research which shows that fines and damages paid and estimated for misconduct, in the 10 banks which they have studied, in the last 5 years have amounted to £157 billion worldwide. In the UK alone this amounts, on average, to nearly £6 billion per annum.

These figures are now being analysed further to identify whether any of the banks under review are improving their performance: and to identify criteria by which performance in this area can be compared, across different countries, markets and types of bank.

It is however clear that conduct costs, or rather the cost of misconduct, are a very significant impost on the cost of trade and the efficiency of the banking system, and are therefore, as a matter of public policy, a mischief which urgently calls for a remedy. Indeed even the bankers themselves recognise that there is an urgent need for public trust in their activities to be restored.

Given that such misconduct is clearly a bad thing, how is it to be stopped? McCormick tells a story to bankers and others at his seminars. Imagine you are on one side of a transaction, and you notice that your counterparty has made a serious mistake, which they have not noticed. The result of the mistake is that you will do much better out of the transaction than you would have done if the other side had not made their mistake.

What do you do? Keep silent and pocket the profit, or point out the mistake – and get what you would reasonably have expected to get out of the transaction, but no more?

Today, McCormick has said, many of those, to whom he puts the story, find it difficult to answer. It might be thought that their chief objective is to make money, to maximise profit. It is not part of their objective to do this in an ethical way. Instead, their only thought of ethical considerations is whether they will, by acting in a particular way, lay themselves open to regulatory sanction. The criterion is not whether it is bad to do something, but whether a policeman will catch me if I do it.

But regulators, almost by definition, offer no solution: we are, after all, trying to reduce the amount of fines and penalties. If we simply say that regulators should regulate less strictly, it would reduce the fines, but it would not necessarily improve the conduct. (We can observe in passing that in identifying the mischief which is banking misconduct, we have defined it by the amount it costs rather than by its moral badness – but it nevertheless remains a serious mischief.)

What is to be done? Lawyers will be familiar with the alleged antithesis between what is lawful, and what is morally right. The existence of that antithesis is, it could be said, a major factor in facilitating banking misconduct. It might look as though bankers’ conduct is determined not by any consideration whether something is morally right, but rather whether it is legally permitted – or whether, even if it is unlawful, whether there is a risk of being caught out by a regulator.

It seems that the only way to obviate conduct costs entirely is to improve conduct – morally. If it were true that a course of action needed to be both lawful and morally right, this would leave no room for moral arbitrage of the kind which McCormick’s story brings out.

How can this be brought about? I suggest that, as well as experts in the upholding of professional standards – such as members of the International Accounting Standards Committee, say – it would be helpful to invite the Archbishop of Canterbury, Justin Welby, to widen the scope of his activity, for example in the St Paul’s Institute, so as to include advice to and involvement with the Conduct Costs Project.

Hugh D Bryant
Reader (Licensed Lay Minister) in the Church of England; former Solicitor and Marine Underwriter