The Commission on Banking Standards is appointed by both Houses of Parliament to consider and report on:
- professional standards and culture of the UK banking sector, taking account of regulatory and competition investigations into the LIBOR rate-setting process
- lessons to be learned about corporate governance, transparency and conflicts of interest, and their implications for regulation and for Government policy and to make recommendations for legislative and other action
A copy of my evidence submission 8 February 2013 is published below, read the invitation from the Commission to submit here.
8 All Saints Street
London N1 9RL
8 Feb 2013
(The Rt Hon) The Baroness Kramer
Parliamentary Commission on Banking Standards
A Joint Committee of the House of Commons and the House of Lords
14 Tothill St
London SW1H 9NB
Dear Baroness Kramer
SUBMISSION OF EVIDENCE TO THE PARLIAMENTARY COMMISSION ON BANKING STANDARDS
I am delighted for the opportunity to participate in this very important process for improving standards in the financial sector, and I am very grateful to you for your invitation to submit evidence.
You and I have communicated in recent times about social investment (often referred to as impact investing internationally) both within the context of the UK and EU markets. Most recently, these conversations have been in my capacity as joint chief executive of Engaged Investment, a UK social investment financial intermediary that I co-founded with Dr Rupert Evenett and that is developing a pilot for EngagedX – the world’s first financial index for impact investing. See http://www.engagedx.com . I am also an author of the report Making Good in Social Impact Investing: Opportunities in an Emerging Market, published in 2011 and available here http://www.engagedinvestment.com/publications.html . The report consciously uses the language of a prospectus in describing the attractions from an investment perspective of social investment as a viable and vibrant emerging capital market and a means of deploying private capital for blended return; both financial and social (including environmental).
We have also spoken in my role as Social Impact Investment Advisor for the Euclid Network, this has included a focus on policy and advocacy work in promoting social investment in the UK and EU. The Parliamentary Commission may be interested in the findings of a task force we coordinated and that in 2011 submitted a communiqué to the European Commission regarding the guiding principles for establishing a European Social Investment Facility. This task force, which consulted with social investment practitioners and related organisations active in 31 EU and Candidate Countries, and which undertook its work in the context of increasing public sector constraints and fiscal consolidation, identified 12 guiding principles for attracting more private capital for social investment via a stronger and better integrated social investment market. The submission to the European Commission and related texts are available via my blog here https://karlhrichter.com/2011/12/01/task-force-for-a-european-social-investment-facility/ .
The EngagedX Index Pilot and disclosure of investment and lending activity
I know that you and Lord Sharkey as well as others have supported the introduction of legislation in the UK that embodies principles included in the Community Reinvestment Act (CRA) of the USA. Of the two primary dimensions of the CRA, the first is the requirement of banks and lenders to disclose mortgage loan requests by geography to allow for comparison with other geographic specific data (such as deprivation statistics), and the second is to safely meet the credit needs of all communities.
If I correctly understand the position of the UK Government, it would like to see at least the first part, namely the disclosure principle, materialise in the UK and that Government is hopeful that negotiations with industry will deliver voluntary disclosure of sufficiently granular data, but that Government may also consider legislation to achieve this objective if industry does not deliver satisfactorily.
In this context, you will no doubt find the EngagedX Index pilot of great interest because it is a practitioner led exercise that includes the voluntarily disclosure of social investment data, including geographic data of where investments are made. For the pilot, we are working with five of the UK’s leading social investment fund managers, including at least one deposit taking retail bank, and gathering a sample of their investment and lending data, expanding in time to fuller and deeper data. We plan on publishing results of the EngagedX Index pilot later this year.
The aim of the EngagedX Index, as a financially orientated index, is to fill the investment data gap in social investment, to give investors the risk and return data as well as other data that they need, to provide a baseline for assessing performance and a benchmark for asset allocation and investor comparison with other financial markets. The goal of EngagedX is to ultimately publish time series data for social investment, updated quarterly and that can answer questions such as “how large is the market?”, “what is the yield of the market?”, “what is the risk of the market?”, “how much social investment is currently being deployed in X region or Y sector?”.
The EngagedX pilot is breaking new ground in a number of respects: it is the first index of its kind internationally for social investment and impact investing and we are working with stakeholders globally to inform us about how to shape the index to best serve the emerging global market of social investment and impact investing; we are working closely with fund managers to negotiate the appropriate legal agreements that will form the basis for the disclosure of information; balancing the aspirations of transparent time series data and at the same time acknowledging the commercial sensitivity that may be associated with this data as well as issues relating to client confidentiality and the Data Protection Act.
The pilot will, in addition to developing suitable data gathering and data handling procedures, also define the standards and classifications required for the appropriate organising and aggregation of the data. In the absence of alternatives, these will for the first time offer investment reporting standards for social investment that can inform how such standards can be evolved and refined globally over time. To this end we continue to consult internationally, within practical limits, with a broad sample of social investment practitioners, mainstream capital markets practitioners, and wider stakeholders such as social sector leaders and other potential users or beneficiaries of the index data to ensure that the output of the index is indeed useful benchmark data; and that it has the appropriate content and structure to be beneficial in informing investment decisions; and to help institutional investors, wealth managers and financial advisors in meeting fiduciary and compliance requirements.
Furthermore, we would welcome the opportunity to inform the Financial Services Authority (FSA), the Financial Conduct Authority (FCA) in time, or any other regulatory or similar body about the EngagedX Index pilot, to answer questions on the EngagedX Index pilot, and to garner any feedback or other suggestions about how it could deliver the greatest value for the social investment market and also support more generally the improvement of standards in the UK banking and financial sectors.
You can read more about the EngagedX Index pilot in our press release here http://www.engagedinvestment.com/press-release_worlds-first-financial-index-for-impact-investing-unveiled.html
I very much hope you have found the information in this evidence submission useful, and I invite you to contact me again should you have any questions or require further information.
Joint chief executive and co-founder