At the start of last month, Singapore’s private banking community published the world’s first industry-led Private Banking Code of Conduct (PBCOC). Not only is the document significant as a framework for best practice in Singapore’s private banking industry, it is also the world’s first set of professional standards written for private banks by their own industry.

The PBCOC has been hammered out by the Private Banking Advisory Group, a committee of senior private banking executives that comes under the aegis of the Monetary Authority of Singapore (MAS). More than that, it is supplementary to all primary and secondary legislation that governs banking and investment activities in Singapore.

The document sets out three objectives: to foster standards; to enhance transparency; and to build confidence in the private banking industry in Singapore.

The framework sets out standards for competency, professional development and market conduct for all client-facing staff. It also requires all private banks regulated by the MAS to include their ethical values within their employment contracts or internal codes of conduct.

While many other financial centres have similar rules in place, the PBCOC marks an interesting milestone in the debate about the role of ethics in financial services – a movement which is gathering global momentum.

Traditionally, the financial services industry has steered away from the thorny subject of ethics (agreeing what is ‘good’ and ‘bad’ for clients). Instead, it has developed within a framework of legislation and regulation, where it is the job of regulators to determine what is ‘right’ and ‘wrong’ and it is up to individual firms to comply and build on those regulations in ways that are ‘good’ for their businesses.

Or, to put it another way, it is up to firms to foster a culture of good practice for the dealings of their staff with clients, suppliers and competitors within a clear regulatory framework.

So, in the US under the Sarbanes-Oxley legislation, firms regulated by the Securities and Exchange Commission (SEC) are required to publish a code of ethics for their senior banking officers, but the content of these documents varies from firm to firm.

Meanwhile, in the UK there are ‘Treating Customers Fairly’ regulations, and on the question of ethics, the Chartered Institute for Securities and Investment covers values and fiduciary duties on the syllabus of its suite of qualifications. These largely reflect the legal and regulatory framework in the UK.

While these activities promote standards and ethics, for wealth managers and private banks this approach presents a particular challenge. Quite simply, from the perspective of the client it appears that the initiation of good practice ultimately lies with the regulator, and the industry only raises standards when kicked sharply from behind.

Interestingly, though, since the financial crisis, a number of financial institutions have tried to take a more proactive stance in a bid to demonstrate good practice and transparency and, presumably, to build the confidence of customers.

Credit Suisse is a notable example of leadership in this field. While the codes of conduct of many SEC-regulated firms tend towards the ‘legalistic’ in content, tone and style, the Swiss firm stands out for enshrining as guiding principles that it will be “a proactive and principled partner to clients” committed to “service and excellence”, “good judgment” and “an atmosphere of openness, fairness and trust”. 

While such leadership is laudable, the actions of Credit Suisse also highlight a key weakness of the old ways. For, as long as market standards are broadly defined in response to regulation, there will be significant opportunities for individual firms to leverage the regulatory framework and differentiate as shining examples of customer care. But this also creates little incentive for the creation of industry-wide standards and genuine best practice.

And while good practice can enhance the reputations of individual firms, only best practice will build client confidence in the industry as a whole. Given that private banking, and financial services more broadly, suffer from a chronic lack of client confidence, it is surely time to consider whether there is a better way.

This is why the launch of the PBCOC in Singapore is a significant milestone for the global wealth management industry. For the first time, an industry-wide code of practice enshrines language such as “honesty”, “integrity”, “credibility” and “reputation”.

More than that, with the blessing of the Monetary Authority of Singapore and the Association of Banks in Singapore, the PBCOC marks a genuine collaboration to agree not only what is ‘right’ for the client, but how firms can develop the policies and business environment that are truly ‘best’ for the client.