In the driving seat of change

Christian Leitz, Head of CR at Swiss bank UBS, convenes the Thun Group, an informal body of banking institutions, that first got together in 2011 to examine what the then just-published UN Guiding Principles on Business and human rights – ‘Guiding Principles’ – meant for the banking sector.

“The Guiding Principles are general in their approach and so we thought it would be useful to interpret them for our sector,” says Leitz.

While banks were not strangers to the issue – at UBS it had been part of its thinking for many years – the Guiding Principles became an external driver and were recognised globally.

Leitz outlines two main reasons why human rights are an important business issue for the banking sector. “Firstly the whole point is to show a commitment to the Guiding Principles through policy and then there’s the due diligence factor which is a key component in a bank’s lending process.”

UBS has integrated advanced data analytics on companies associated with significant environmental and human rights controversies into the web-based compliance tool used by its staff. “It’s about screening potential business partners,” says Leitz. And it has clearly enhanced the bank’s ability to identify potential risks as is evidenced by the high number of cases referred for assessment to its environmental and social risk units since 2012.

From the time when the Thun Group was formed the Group has met three times, but conference calls are more frequent. In 2013, the Group produced a Discussion Paper which has since become a reference point for the banking industry worldwide, as it’s the only major document that effectively applies the Guiding Principles (to be precise, Principles 16-21) – and their impacts – to the banking sector.

“We hope it provides guidance,” says Leitz but points out that while it is a benchmark, it’s not a formal standard. “It’s up to individual banks to interpret it for themselves.”

The paper suggests an approach to risk assessment through tailored due diligence which may be undertaken in the core business activities of universal banks, i.e. retail and private banking, corporate and investment banking, and asset management.
Following the publication of the paper, Leitz says that the Group is very much in the ‘spirit of continuing’. “We now need to break it down into specific tasks,” he maintains. 

One of the areas the group may look at is the language used in considering the Principles. “People don’t always use the same terminology and that can be a problem when it comes to risk management,” he says. “So do we need to provide practical guidance on terminology?” he wonders.

Another element the Group hopes to address is to expand the community of people who are experts in the field. “We realize that there are plenty of people with expertise in human rights and plenty of people with expertise in business, but people with expertise in both areas is a very limited community,” says Leitz.

Leitz is very aware of the importance such a group has. Most of the members of the Thun Group – which include Barclays, BBVA, Credit Suisse AG, ING Bank N.V., RBS Group and UniCredit in addition to UBS – also are members of the Equator Principles Association’s steering committee, so their pronouncements are taken more seriously. The Equator Principles set a framework for evaluating environmental and social risk in project financing.

“While media interest may be limited, the key response has been from other stakeholders, in particular from governments where the Discussion Paper helps them in their discussions,” comments Leitz. “We are creating a benchmark and therefore we create expectations.”

Leitz highlights the Group’s direct influence on UBS’s own processes and policies. The bank’s Environmental and Human Rights Policy Framework has been revised to reflect the recent commitments made by the firm in the Discussion Paper and to formalize accountability for human rights issues. UBS’s Environmental and Human Rights Policy Framework builds on the firm’s Code of Business Conduct and Ethics and underlines its commitment to observe international environmental and human rights standards in everything it does – not only with respect to its direct impact, but also when providing financial services to its clients.

Another example of how UBS is driving best practice in the international banking sector is the Wolfsberg Group. Set up at the end of the 1990s when banking was going through a period of significant change, the idea was to bring together global banks to promote good practice in Anti Money Laundering (AML). Initially, its focus was on private banking – hence UBS’s involvement as one of the world’s largest private banks – but over subsequent years it has come to embrace a wide range of current issues affecting the sector.

UBS was a founding member and key initiator. It has 11 members in total who, according to Jonathan Shih, UBS’s head of compliance and risk control as they relate to financial crime, are committed to contributing to the group.

The 11 member banks of the Wolfsberg Group are: Banco Santander, Bank of Tokyo-Mitsubishin UFJ, Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan Chase, Société Generale and UBS. Banks that aren’t members are invited to attend the annual gathering and there is an outreach initiative. “When we go into a region, we invite other banks along to our workshops,” says Shih.

All members follow the Group’s AML principles. The Wolfsberg Standards consist of the various sets of AML principles, as well as related statements, issued by the Group since its inception.

The group’s aim to establish and disseminate good practice means that “once the principles are out there, then any bank can adopt them” maintains Shih.

“We also seek to have a very open dialogue with other stakeholders, including regulators.”

The Group identifies areas where banks could benefit from guidance on best practice when it comes to AML. Most recently it has focused on correspondent banking – where banks hold accounts for other banks – and new payment methods (such as mobile and internet payment services). It regularly updates guidance depending on AML regulatory changes.

The Group considers itself to be a leader in the space. “AML is a very dynamic area,” explains Shih. “We formed the Group back in the 1990s and AML is as relevant today as it was back then. It is of key importance to all banks.” It is important for the Group’s principles to stay current and relevant. “Ultimately the aim of AML is to help in the fight against financial crime,” says Shih.
“What the group helps to do is shape AML thought and practice,” explains Shih.

The Group meets regularly during the year with its annual forum lasting three days and generally considered one of the highlights of the global AML calendar. “It’s a time when we get to have open dialogue with some of the most important people in the space – all together. Quite a unique occasion,” Shih comments.

Both the Thun and Wolfsberg Groups are named after the locations in Switzerland –UBS conference centers – of their initial meetings. While UBS is keen to point out that neither group is ‘owned’ by the bank, its early involvement and commitment in both areas shows how it has been – and continues to be – a real driving force in banking best practice.

As Henry Ford is often quoted: “Coming together is a beginning, keeping together is progress and working together
is success.”