From Minouche Shafik
Deputy Governor, Markets and Banking, Bank of England:

How can we reverse the tide of misconduct in global financial markets? We must acknowledge that we cannot expect misconduct to never occur. But we can seek to move from ‘ethical drift’ — the process of unethical behaviour going unchecked, and hence becoming progressively more widespread and accepted as the norm; to ‘ethical lift’ — where individuals and firms take responsibility for their actions and promote good behaviour and higher professional standards.

How can we achieve this? The authorities have a role to play. In the UK, we have introduced rules and regulations to enforce minimum standards of conduct, hold individuals to account for their actions and put in place incentives to promote good conduct. But ‘hard law’ is not enough. Participants must come together to create ‘soft law’: aspirational standards which are higher than the regulatory minimum and encourage ongoing behavioural change. This is vital for shaping culture in firms and across markets, and for preventing future cases of misconduct in rapidly evolving financial markets.

I look forward to discussing how we can improve conduct to achieve fairer and more effective financial markets with Bill Dudley and Norman Chan at the New York Fed on 20 October.

This is being published from the New York Fed by a guest writer as part of Reforming Culture and Behavior in the Financial Services Industry: Expanding the Dialogue. The views of the author are her own and are offered by the New York Fed to contribute to discussions on this topic.