It is true that professional reputations are not what they once were, that self-regulation of standards of competence has often been inadequate, that professions’ ethical standards have declined generally. But it is also striking that such decline is most noticeable in the areas of law and accountancy closest to financial services.
Two members of parliament have tabled a motion demanding that banking executives should have a recognised banking qualification. The proposal follows the admission last week by the humbled former chiefs of Royal Bank of Scotland and HBOS that they had none.
Perhaps the MPs have missed the point. The conventional banking qualification has been membership of the Chartered Institute of Bankers (now absorbed in the IFS School of Finance) or the Chartered Institute of Bankers in Scotland. These programmes originated in an era when bank managers were recruited from those who did not expect to go to university. Someone who had completed such a qualification would know little about the structured products that brought great banks to the point of collapse. Nor would they be well informed about the structure, strengths and weaknesses of the quantitative risk models that failed to give these banks the security they sought.
The skills required to understand the advanced products of the modern financial system are of a different kind, perhaps of a different order. The requirement was for an understanding of the mechanics of structured products combined with the economic knowledge to put them in context and the management skills to run the organisations that marketed them. It is doubtful whether anyone at all had this range of abilities. Certainly no certificate exists that would attest to such an achievement.
But perhaps it should. The lawyers who document the products of the financial services industry, the doctors who treat the ulcers and addictions of those who are employed in it, and the engineers and architects who design the buildings in which these employees work all have prestigious qualifications with demanding entry requirements and lengthy and rigorous training and examination. There is no such requirement for financial service employees.
Of course, the financial services industry attracts smart people. In the last two decades it has sucked up a high proportion of the best graduates in Europe and America. Business schools offer finance courses and the designers of complex products often have advanced degrees in maths and physics. Investment banks have offered some of the best and most comprehensive graduate training programmes available.
But these courses are largely business and task specific, designed around the interests of the institution that establishes them. New recruits to financial services must now have some formal training, but the content of these courses is not demanding and is as much concerned with the mechanics of regulation as with the acquisition of substantive expertise. There is a big difference between company training programmes and professional education. Company training reinforces the culture of an organisation: professional education emphasises a historical and social context. The bond salesman asks whether a new product will be profitable for him and his bank: the doctor asks whether a new treatment will be beneficial to his patient. In the most trusted profession, medicine, the quality of education is clearly the responsibility of medical schools rather than medical employers.
It is true that professional reputations are not what they once were, that self-regulation of standards of competence has often been inadequate, that professions’ ethical standards have declined generally. But it is also striking that such decline is most noticeable in the areas of law and accountancy closest to financial services; and even amid the excesses of “eat what you kill”, professional restraints limit what lawyers and accountants feel able to do. You can still expect a lawyer or accountant to have some concern for your interests. You can have no such confidence when you buy financial services.
So the parliamentarians were right to look at the professional status of the people before them last week. Unless the financial services industry faces up to the issues raised, it will face an even harder task in rebuilding the trust and confidence of the public.