The financial services industry is failing to adopt voluntary standards crucial to rebuilding trust in banking, despite overwhelming support from those working in the sector, according to a joint report by BSI, the UK National Standards Body, and the Chartered Institute for Securities & Investment.

The study, Backing Market Forces, argues that adopting voluntary standards, alongside regulation, could provide a ‘third way’ between self-regulation and over regulation from government.

The study analysed how voluntary standards could play a greater role in rebuilding a safer and more trusted financial services sector. Findings show that financial services decision makers overwhelmingly support the adoption of voluntary standards and believe such standards could help them navigate this highly regulated sector.

More than two thirds of those surveyed called for more standards in finance around people (78%), products (71%) and processes (69%), with the majority (54%) favouring their creation by the industry as opposed to the regulator (23%).

Around the world there are calls for more intensive regulation of financial services, yet regulation requires resources and changes the nature of, or even reduces, competition.

The report argues that voluntary standards markets, used widely in industries such as food and shipping, could be used more widely in financial services if regulators and legislators considered a ‘third way’ for financial services regulation.

While standards are already used in financial services they appear to be a relatively low user when compared to other sectors.

Scott Steedman, director of standards, BSI commented: "Given the mounting pressure on the financial services sector, Alderman Michael Mainelli’s excellent and timely report confirms that voluntary consensus standards could provide a valuable tool for the financial services community to share best practice in many areas of business, including products, processes and organizational development. Bringing consumers, the wider society and all stakeholders together to help create a trusted voluntary standards market in financial services, is a role that BSI as the National Standards Body is well placed to deliver."

The report, prepared by leading financial services think tank, Z/Yen Group, concludes that a ‘New Combined Approach’ to regulation in the financial services sector will bring benefits through more rapid reform of the sector, lower costs of regulation and increased confidence in the financial system as a whole.

It recognizes the need to seize opportunities for the use of voluntary standards as part of new regulatory initiatives or reforms.

Professor Michael Mainelli, author, Chartered FCSI, said: "Society naturally reacts to risks by wanting to eliminate or control them, but over-reaction can impair or ruin markets. In the right circumstances, rather than imposing onerous regulation or spouting unenforceable principles, using voluntary standards markets that bridge the market-government divide, can help us all make better decisions."

The report recommends better coordination of existing voluntary standards development, more evidence of voluntary standards markets’ benefits and costs, and integration of voluntary standards with wider government policies.

The report identifies many areas where voluntary standards are currently lacking, such as in anti-money laundering, qualified investor rules, or fiduciary ratings.

Simon Culhane, CEO, Chartered FCSI and CISI said: "This stimulating report highlights how standards could play a greater role in finance, not least to increase transparency and encourage better practice. The CISI is delighted to have been invited to join with BSI in supporting this important research project into standards by Alderman Professor Michael Mainelli, Chartered FCSI and his team. During the course of 2014 we will be engaging with our 40,000 members round the world through our extensive events programme, our online channels and our member-led Professional Forums, in partnership with the dozens of global banks and regulators with whom we have close working relationships to understand how we can best help develop Professor Mainelli’s wide-ranging and fascinating proposals."