Keynote Speech by Angel Gurría
Banque de France, Paris, 15 January 2018
(As prepared for delivery)
Governor Villeroy de Galhau, Professor Dembinski, Ladies and Gentlemen,
I am delighted to address the 6th edition of the “Ethics and Trust in Finance” Global Prize ceremony.
Let me congratulate all the finalists for their ground-breaking essays. It is inspiring and comforting to see these gifted young people engaged in winning back trust in finance.
We can go nowhere without trust. Trust supports most – if not all – collective and individual human interactions, from finance and trade to welfare systems and education.
Yet, trust was a badly-hit victim of the financial crisis, and shows little sign of recovering, even as some aspects of the economy improve. Trust in government is particularly low. In the OECD, only 4 out of 10 citizens trust their governments. Trust in business is slightly better, but not by much. In 2017, just over half of the people surveyed by the Edelman Trust Barometer (52%) trusted business, and this figure actually fell one percentage point compared to 2016 (from 53%).
We have witnessed a string of high profile misconduct cases in major financial institutions, even after the crisis. Despite the massive financial sector support programmes put in place by governments and extensive new financial rules and regulations, the LIBOR and foreign exchange rate manipulations made clear that serious conduct problems had persisted in the industry. Even after the LIBOR manipulation was revealed, manipulation of foreign exchange rates continued. This suggests that the appropriate lessons were not learnt. This has eroded public confidence in the financial system even further.
Because of the essential role played by the financial system in the economy and society and of the guarantees bestowed by the state, including in the “too big to fail” sense, the public places a high ethical bar on financial institutions. A culture of integrity is essential to a well-functioning financial system and a more inclusive economy.
That is why the OECD has identified rebuilding public trust as critical to the recovery of the post-crisis economy.
Financial institutions, as asset managers and lenders, have an important role to play in promoting responsible business conduct amongst their clients and investee companies. However many financial institutions continue to exclude environmental or ethical considerations in their decision-making processes. A survey of more than 100 institutional investors by Hermes Investment Management found that nearly half of respondents believed that pension funds should focus exclusively on maximising financial benefits to beneficiaries.
Furthermore, of the estimated 80,000 multinational companies in the world, only around 5,000 to 10,000 are estimated to publish environmental and social performance reports. This lack of meaningful information prevents financial institutions from making responsible decisions with respect their investments.
This is where you come in. Let me share with you some examples of how the OECD is supporting the financial sector and the broader business community to improve integrity and restore the trust of the people.
Firstly, the OECD is supporting the financial sector to improve corporate governance, which is critical to prevent corporate misconduct and to rebuilding trust in private business. The OECD has partnered with the G20 to produce the revised and updated G20/OECD Principles of Corporate Governance, which provide globally-recognised standards on transparency, accountability and business integrity. A strong disclosure regime can help attract capital and maintain confidence in the capital markets: this is a core message of the Principles.
There is no one-size-fits-all solution, but our work shows that firms committed to effective action are supporting their ambitions with a well-defined internal structure of responsibilities, accountability and reporting. This is also the basis of our collaboration with the Financial Stability Board (FSB) on improving the governance of financial firms to address misconduct risk in the financial sector, going beyond financial disclosure to cover also environmental information.
Secondly, the OECD is promoting responsible business conduct. The OECD Guidelines for Multinational Enterprises were the first international corporate responsibility instrument to incorporate risk-based due diligence into major areas of business responsibility. We are now developing due diligence guidance for a number of sectors, including the financial sector, to help companies identify and manage the social and environmental risks in their supply chains.
Thirdly, the OECD is helping fight corruption in international business. Thanks to the OECD Anti-Bribery Convention, which turned 20 in 2017, there are over 500 ongoing investigations into alleged acts of foreign bribery in 29 countries. Regaining the trust we have lost requires that we continue to make fighting corruption in business a priority and that we expand the scope of our work, such as the new standards on integrity in state-owned enterprises that we are developing.
Last but not least, the OECD is tackling tax evasion and avoidance. In June 2017, more than 70 countries and jurisdictions signed the OECD’s multilateral convention on Base Erosion and Profit Shifting (BEPS), which is tackling the gaps and mismatches in tax rules that allow profits to be shifted to low or no-tax locations. These practices are estimated to have cost our treasuries up to 240 billion Dollars per year.
We are also fighting tax evasion though the new global standard on Automatic Exchange of Information (AEOI). Up to 85 billion Euros have already been collected from taxpayers who now know that there is, quite literally, no place left to hide.
Ladies and Gentlemen,
There is in all these issues a crucial ethical element beyond the economic perspective. Whether by error, neglect, or by choosing to engage in reckless risk-taking, many institutions engage in misconduct. Ethical leadership is in high demand in finance like in politics.
Albert Camus famously argued that « l’intégrité n’a pas besoin de règles. » I think he is right, but experience shows us the value of building rules and procedures to steer behaviour in the right direction and discourage deviations when ethics are weak. Such frameworks facilitate compliance, monitoring and help build trust.
I am confident that some of the innovative ideas included in the essays competing for today’s prize will help take us in that direction. You can count on OECD support every step of the way.