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Public accountability: it's not only banks that needs closer scrutiny Public accountability: it's not only banks that needs closer scrutiny
(about 11 hours later)
The Reverend Paul Flowers, the former chairman of the Co-op Bank, we are now told, was hugely profligate with expenses, watched pornography on his work computer, hired male prostitutes, paid for crack cocaine and, knowing next to nothing about banking, led the Co-op, already lumbered with the purchase of the Britannia Building Society, as it blundered into an attempt to buy 631 branches of Lloyds with no money in the till. This magical feat of accountancy beggars belief, coming as it did in the wake of the earlier huge bailouts by taxpayers of RBS and Lloyds, similarly blind to the limitations of their capital.The Reverend Paul Flowers, the former chairman of the Co-op Bank, we are now told, was hugely profligate with expenses, watched pornography on his work computer, hired male prostitutes, paid for crack cocaine and, knowing next to nothing about banking, led the Co-op, already lumbered with the purchase of the Britannia Building Society, as it blundered into an attempt to buy 631 branches of Lloyds with no money in the till. This magical feat of accountancy beggars belief, coming as it did in the wake of the earlier huge bailouts by taxpayers of RBS and Lloyds, similarly blind to the limitations of their capital.
It is all too easy to see Flowers as the comic sideshow, now dubbed the crystal Methodist man of the cloth, who has spent years gleefully behaving badly, protected by his dog collar and the old boys' network. His solicitor says his client is now "in a rather ponderous frame of mind". Far more significant is the damage done to a mutual with a proud history of ethical behaviour, now with a £1.5bn hole in the bank's capital and at the mercy of two hedge funds propelled by a very different drive.It is all too easy to see Flowers as the comic sideshow, now dubbed the crystal Methodist man of the cloth, who has spent years gleefully behaving badly, protected by his dog collar and the old boys' network. His solicitor says his client is now "in a rather ponderous frame of mind". Far more significant is the damage done to a mutual with a proud history of ethical behaviour, now with a £1.5bn hole in the bank's capital and at the mercy of two hedge funds propelled by a very different drive.
A danger also exists that Flowers and the mudslinging that currently occupies Labour and the Conservatives will distract from one of the core lessons of the Co-op debacle. Yet again, good governance and a sense of responsibility have been alarmingly absent in the financial sector. At the same time, Osborne, in allowing the regulators to appoint a head of their own choice to the inquiry he has instigated, has prompted Lord Myners, city minister during the banking crisis, to condemn "an enfeebled investigation, compromised and emasculated from day one".A danger also exists that Flowers and the mudslinging that currently occupies Labour and the Conservatives will distract from one of the core lessons of the Co-op debacle. Yet again, good governance and a sense of responsibility have been alarmingly absent in the financial sector. At the same time, Osborne, in allowing the regulators to appoint a head of their own choice to the inquiry he has instigated, has prompted Lord Myners, city minister during the banking crisis, to condemn "an enfeebled investigation, compromised and emasculated from day one".
In the business of the Co-op bank, regulation has clearly been found wanting. In late 2011, the Financial Services Authority, precursor of today's Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) told the Co-op bank that it lacked the management skills and possessed too little capital to make the Lloyds purchase. Yet still the Co-op was involved in a £750m deal to buy the Lloyds branches, incredibly with no dissent from the FSA. On the contrary, the Co-op was applauded by Osborne for "creating a new banking system for Britain that gives real choice to customers and supports the economy".In the business of the Co-op bank, regulation has clearly been found wanting. In late 2011, the Financial Services Authority, precursor of today's Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) told the Co-op bank that it lacked the management skills and possessed too little capital to make the Lloyds purchase. Yet still the Co-op was involved in a £750m deal to buy the Lloyds branches, incredibly with no dissent from the FSA. On the contrary, the Co-op was applauded by Osborne for "creating a new banking system for Britain that gives real choice to customers and supports the economy".
Earlier this year, in the wake of yet another financial scandal in the rigging of the Libor rate, the parliamentary commission on banking standards published its recommendations, optimistically entitled "Changing Banking for Good". The commission had already called for the ringfence between the retail and investment arms of banks to be strengthened with regulators stepping in if institutions try to game the system. It then called for a criminal offence of reckless misconduct for senior bankers and limitations on bonuses. This week, in the House of Lords, members of the now defunct commission will attempt to put teeth back into some of its recommendations as the financial services (banking reform) bill moves through the House.Earlier this year, in the wake of yet another financial scandal in the rigging of the Libor rate, the parliamentary commission on banking standards published its recommendations, optimistically entitled "Changing Banking for Good". The commission had already called for the ringfence between the retail and investment arms of banks to be strengthened with regulators stepping in if institutions try to game the system. It then called for a criminal offence of reckless misconduct for senior bankers and limitations on bonuses. This week, in the House of Lords, members of the now defunct commission will attempt to put teeth back into some of its recommendations as the financial services (banking reform) bill moves through the House.
On Wednesday, the charity Public Concern at Work (PCAW) publishes the findings of its whistleblowing commission, set up to examine how to close the loopholes in the original whistleblowing legislation, now 15 years old, and strengthen the hand of regulators.On Wednesday, the charity Public Concern at Work (PCAW) publishes the findings of its whistleblowing commission, set up to examine how to close the loopholes in the original whistleblowing legislation, now 15 years old, and strengthen the hand of regulators.
The findings of the whistleblowing commission are a reminder that it is not just in banking in which there is a crisis of trust, a dearth of proper scrutiny, a deficit of integrity and an absence of culpability. As the former archbishop of Canterbury, Rowan Williams, says in an article recently published by the Joseph Rowntree Foundation, we are "a society with corrupt governance and low accountability".The findings of the whistleblowing commission are a reminder that it is not just in banking in which there is a crisis of trust, a dearth of proper scrutiny, a deficit of integrity and an absence of culpability. As the former archbishop of Canterbury, Rowan Williams, says in an article recently published by the Joseph Rowntree Foundation, we are "a society with corrupt governance and low accountability".
Only last week, for instance, the redoubtable public accounts committee of the House of Commons exposed the lack of public confidence in outsourcing more than £93bn pounds of goods and services to the private sector again. Two major providers, Serco and G4S, are being investigated for allegedly overcharging the government for electronic tagging of offenders; a further 10 inquiries are underway into botched contracts. The two companies have both shed chief executives, but huge losses to the taxpayer have already taken place.Only last week, for instance, the redoubtable public accounts committee of the House of Commons exposed the lack of public confidence in outsourcing more than £93bn pounds of goods and services to the private sector again. Two major providers, Serco and G4S, are being investigated for allegedly overcharging the government for electronic tagging of offenders; a further 10 inquiries are underway into botched contracts. The two companies have both shed chief executives, but huge losses to the taxpayer have already taken place.
Again last week, Mick Creedon, chief constable of Derbyshire, admitted that police are "manipulating" official crime figures; as a result, statistics do not reflect the true level of crime, allegedly at a record low. PC James Patrick, who revealed the deception, faces a disciplinary hearing. In health, the Francis inquiry confirmed a scandalous lack of care in the Mid Staffordshire NHS Foundation Trust. It made a stream of recommendations, but not a single senior manager was deemed responsible.Again last week, Mick Creedon, chief constable of Derbyshire, admitted that police are "manipulating" official crime figures; as a result, statistics do not reflect the true level of crime, allegedly at a record low. PC James Patrick, who revealed the deception, faces a disciplinary hearing. In health, the Francis inquiry confirmed a scandalous lack of care in the Mid Staffordshire NHS Foundation Trust. It made a stream of recommendations, but not a single senior manager was deemed responsible.
A lack of accountability; insufficient boundaries; the connivance of those in authority who should have known better are part of a pattern that has repeated itself again and again, for instance, in the appalling crimes of Jimmy Savile; in phone hacking in the media and in the Hillsborough disaster. Possibly, such a casual attitude to the importance of correctness in public life and retribution existed before the financial crash in 2008; however, the continuing cupidity of those who, instead, should have been serving time and eating humble pie has perhaps focused the collective mind on the extent of the problem that now exists.A lack of accountability; insufficient boundaries; the connivance of those in authority who should have known better are part of a pattern that has repeated itself again and again, for instance, in the appalling crimes of Jimmy Savile; in phone hacking in the media and in the Hillsborough disaster. Possibly, such a casual attitude to the importance of correctness in public life and retribution existed before the financial crash in 2008; however, the continuing cupidity of those who, instead, should have been serving time and eating humble pie has perhaps focused the collective mind on the extent of the problem that now exists.
On a more positive note, the new FCA and PRA have still to show their mettle and such scrutiny that is in place has been provided by the re-energised work of a number of select committees in the House of Commons. However, a major challenge remains: how can current practices that amount to a reactive flurry of inquiries, relatively modest fines, a couple of resignations and not much else shift to a proactive rebuilding of a healthier civic society?On a more positive note, the new FCA and PRA have still to show their mettle and such scrutiny that is in place has been provided by the re-energised work of a number of select committees in the House of Commons. However, a major challenge remains: how can current practices that amount to a reactive flurry of inquiries, relatively modest fines, a couple of resignations and not much else shift to a proactive rebuilding of a healthier civic society?
On its recent 10th anniversary, the charity the Centre for Public Scrutiny suggested simple ways to make society more transparent, inclusive and accountable. They included ethical leadership by independent people who take responsibility for their role and a speedy response to the amplified concerns of the voices of the public – no 20-year delay as in Hillsborough. PCAW says the aviation industry is a model of how to make the shift from a blame culture in which whistleblowers are victimised to an open system in which failure is acknowledged, the regulator is effective and reporting of concerns is mandatory.On its recent 10th anniversary, the charity the Centre for Public Scrutiny suggested simple ways to make society more transparent, inclusive and accountable. They included ethical leadership by independent people who take responsibility for their role and a speedy response to the amplified concerns of the voices of the public – no 20-year delay as in Hillsborough. PCAW says the aviation industry is a model of how to make the shift from a blame culture in which whistleblowers are victimised to an open system in which failure is acknowledged, the regulator is effective and reporting of concerns is mandatory.
AJ Balfour, Conservative prime minister when the 20th century was in its infancy said: "Democracy is government by explanation." So far, the explanations of why we have such rotten elements in too many of our institutions have proved far from satisfactory; that has to change.AJ Balfour, Conservative prime minister when the 20th century was in its infancy said: "Democracy is government by explanation." So far, the explanations of why we have such rotten elements in too many of our institutions have proved far from satisfactory; that has to change.
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