Mark Carney’s speech at the Bank of England’s Open Forum 2015 today
This morning in London, Mark Carney reflected on the progress the Bank of England, and other Central Banks across the G20, have made in reforming financial markets. When using the term “social licence” he is clear that he means legitimacy in the eyes of society – NGOs, trade unions and the wider public. “Finance”, he claims. “must become a true profession… only a third of people believe that markets operate in the interests of society” Drawing on his Mansion House speech earlier in the year, Carney is robust in stating that we “must end this tide of ethical drift”. Misconduct must be met with real (and large) penalties and governments must uphold the highest standards of accountability. Fine words, but words which must be matched by action.
What has already been achieved?
Financial markets are growing. Within the G20, there are now $75 trillion assets under management. Banks must be more resilient because they can no longer rely on the state – in the future private financial institutions must be allowed to fail. Robust market infrastructure is a public good.
In the UK, for example, there has been progress since 2008. Liquid assets of banks increased four times in the UK, the system is more robust. George Osborne, UK Chancellor of the Exchequer, followed Carney in detailing how bad things were in 2008. “For too long too many financial benchmarks were rigged by insiders, banks claimed to be adequately capitalised when they were not, it is now – seven years after the financial crash – that we can be honest about its causes and effects.” Banking regulation is now back in the hands of the financial regulator and UK banks are “much safer”.
What more needs to be done?
It is clear that there is much more work ahead if the UK is indeed to become the financial technology (“FinTech”) centre of the world. London-based financial markets are already six times greater than UK GDP and this is set to grow to fifteen times. This disparity represents a power gradient. How does UK society really feel that it benefits from hosting such vast revenue flows? This question is also one that all Central Banks across the G20 must be prepared to answer.
What is stopping markets from being truly sustainable and benefitting society as a whole? This needs to be the real benchmark for our work ahead across the whole G20. Both Carney and Osborne claim that FinTech will enable greater transparency and accountability. This remains an open question, in particular because of concerns over privacy and encryption that the UK is currently dealing with in other legislation. Another unanswered question is the cultural change needed in the City of London for public trust to be restored. Most people joined the financial sector when the incentives were very different and most of them are still there – very few have been penalised. How will we know that the cultural shift has been achieved? I hope we will hear more from Messrs Carney and Osborne on this issue over the months ahead. Perhaps the creation of a global corporate human rights benchmark for the world’s 500 largest companies will be part of the solution.