1. Introduction

2. Loss of trust and excessive remuneration in the banking sector

We recommend that the work of the High Pay Commission, and its data on pay structures be given a much higher profile and its recommendations be included in the UK Corporate Governance Code. The High Pay Commission should be funded to continue its work for another ten years.

3. Qualifications, professionalism and the public interest in the banking sector

We recommend that the boards of all banks be required to accept their public interest duty and state publicly that [1] that they have fulfilled their responsibility to provide public service without placing depositor and taxpayer money at undue risk. Banks’ boards should also confirm that internal processes of the bank ensure that all staff are obligated to serve the public interest in an ethical manner.

4. Prohibiting investment banking and commercial banking within the same organisation

The ethical code for banks should be based on the cardinal virtues deriving from Plato (prudence, restraint, fortitude and justice) rather than three deadly sins (greed, envy and pride).

We support the proposal to separate completely, not merely "ring fence" retail /commercial banking from investment, banking, because there is no practical and implementable way of isolating them from each other within a single organization. Investment banks, excluded from any actual or potential taxpayer support, should be required to establish, observe and enforce ethical codes, and maintain effective control and governance systems because they also are entrusted with other people’s money.

5. Globalisation

We recommend that UK regulators and government should be particularly mindful of the risks associated with cross border activity in the financial sector. The UK economy needs to be protected against the financial consequences of importing high risk financial developments or activities originating in other countries on the grounds of maintaining competitiveness. Before allowing unbridled expansion in financial products, regulators and government should ask if they are promoting a race to the top or to the bottom.

6. The introduction of IFRS in the EU in 2005 and convergence with US GAAP

We believe that the concept of a common set of "high quality" accounting standards for use around the world has been seriously flawed from the outset and the IASB has misused its resources in a convergence project which was bound to fail. It let down its users, particularly in the EU, by concentrating on convergence with US GAAP instead of ensuring that the standards were of "high quality" for existing users. The UK government should not blindly support the principle of common global standards because of the self-interested lobbying by a relatively small number of large organisations. Also, as argued below, the IASB is not capable of producing "high quality" standards. Neither is it possible to achieve uniformity of results from a single set of rules in a world of economic, social, legal, and political diversity.

7. The accounting model, auditing and the banking crisis

We recommend from the evidence shown above that the UK government should no longer trust the IASB standards to produce credible accounting numbers, which are drawn up under the principles of prudence and reliability, show a true-and-fair view and reflect the economic substance of the business. Also it is clear that the true-and-fair view requirement has not been retained in IFRS. Therefore UK company law should be changed so that directors and auditors are required to report that the accounting numbers are prudent, reliabiable, show a true-and-fair view and reflect the economic substance of the reporting entity. Both directors and auditors should be required to override the IFRS standards and conceptual framework as necessary. In the case of banks the agreement of the banking regulator should be required. In the case of other companies the market regulator should be consulted.