Business Ethics and Human Rights
Corporate Code of Business Ethics and Human Rights
In the same way the Company adheres to the principles of good corporate governance, it is also important that all staff should know what standards of conduct are expected from them.
Our relationship with shareholders, customers and other stakeholders is of paramount importance to us and to retain their trust and faith in us our staff must act in an appropriate manner at all times. Our Code of Business Ethics and Human Rights, therefore forms a key element in the way we conduct business, and we believe that the Code is designed to be beneficial to all stakeholders.
The Code clearly outlines the requirements (in letter and spirit) of Northern Rock plc by our staff, suppliers and sub-contractors in the areas of:
- Customer Service
- Our Shareholders and Stakeholders
- Business Conduct Expected from Employees
- Compliance
- The Community and the Environment
- Safeguarding Northern Rock and its Assets
- Company Policy on Public Interest Disclosure.
The Code was reviewed and re-issued in 2004.
During the latter part of 2005 working parties were established under our Corporate Social Responsibility (CSR) Steering Groups to commence a further review of our Corporate Code of Ethics and Human Rights to incorporate where practicable, additional Human Rights issues, together with recommendations made by the Institute of Business Ethics.
This revised Code will be adopted formally in 2007.
To increase our commitment to these issues we also intend to produce a supplier Code of Ethics.
To access the existing Code of Ethics click here (114 kb pdf)
No action was required to be taken during 2006 under the terms of the Code of Conduct and Ethics.
Corporate Hospitality Register
Northern Rock requires under its Code of Conduct and Ethics that staff are:
“Not to accept or offer any inducement – financial or otherwise – in connection with any work related matter, including, but not limited to, not accepting gifts or excessive hospitality from competitors or supplier companies.”
All staff are required to declare any gifts or hospitality received in a register maintained and reviewed by the Company Secretary. Operational Directors are required to conduct a regular formal review within their own operational areas in order to ensure compliance with the hospitality provisions of the Code.
No action against staff was required to be taken during 2006 under the parameters of the Hospitality Register section of the Code of Conduct.
Group Treasury
The Treasury function at Northern Rock is not a trading unit and it does not invest in the equity market. Treasury performs market operations for the bank by raising wholesale funding, issuing securitised debt and covered bonds, managing liquidity and managing balance sheet risk.
As part of the process of managing liquidity, Treasury invests in the Interbank cash and global bond markets. The counterparties are predominantly sovereigns, other banks, building societies, large corporates and local authorities. The bank is required by our regulator, the Financial Services Authority, to hold a percentage of total assets in the form of highly liquid sterling stock eligible assets. These comprise UK and other European Government securities. Non-Government Bonds are also held for liquidity purposes, and these must meet strict credit criteria.
The credit rating profile of Treasury liquid assets show that approximately *56% of these were rated 'AA' or better (*97% rated 'A' or better) by the three main credit rating agencies, Moody's, Standard & Poor's and Fitch IBCA. A key consideration in liquidity management is the credit quality of the counterparty. It is not our policy to invest in emerging markets or non-investment grade debt. The bank's liquidity, overall investment criteria and counterparty creditworthiness are regularly reviewed and monitored by Treasury Management and Executive Management in accordance with Policy Statements approved by Group Board.
With regard to wholesale funding, Group Treasury would not accept funding from entities or individuals named on the Bank of England Sanctions List, or from counterparties based in countries identified as ‘Non-Cooperative' for Money Laundering purposes. Identity of all new funding counterparties is verified in accordance with the best practice in the current Guidance Notes issued by the Joint Money Laundering Steering Group.
Any treasury dealing outside the scope of the FSA regulation, such as money market deposits and foreign exchange, is covered by the Non Investment Products Code (NIPs Code). This is a voluntary code (endorsed by the FSA) that lays down what is general good market practice. As well as market practice covering dealing mechanics, it also covers other areas such as marketing and incentives, entertaining and gifts, gambling and drug & alcohol abuse.
All new staff in Northern Rock Settlements and Front Office receive a compliance briefing from the Senior Manager, Treasury Control and Compliance, which includes an introduction to NIPs, and are provided with a copy of the full code.
The Group Compliance and Treasury Control & Compliance teams conduct periodic reviews to assess how our policies, procedures and practices compare to FSA regulations and best practice in the NIPs Code. The most recent review was completed in the third quarter of 2006.
* figures as at 24.11.06
Socially Responsible Investment (SRI) and the Northern Rock Pension Scheme
Staff are eligible for membership of the Pension Scheme if they are permanent employees of the Company and aged not less than 16 and not more than 59. Eligible employees are automatically included in the Scheme on the 1st of the month following completion of 6 months' employment, though they may opt in before this if they so wish.
The Trustees have reviewed the JustPensions report, (produced in conjunction with the National Association of Pension Funds ( NAPF ) entitled "Do UK Pension Funds Invest Responsibly?" and the self-assessment checklist included, which was produced to enable Trustees to assess whether they are taking adequate action in relation to Social, Environmental and Ethical (SEE) issues, arising from their Investment Management activities.
The Trustees have confirmed that the Northern Rock Pension Scheme has adopted an appropriate stance on SRI/SEE matters and no further changes are proposed to the previously agreed SRI policy statement included in the Statement of Investment Principles (SIP).
Socially Responsible Investment - Extract From SIP (Statement of Investment Principles)
The SIP is a written statement recording the investment policy of the pension scheme which Pensions Act 1995 requires Trustees to prepare and keep up-to-date.
The Trustees' primary duties when determining their investment policy are to maximise the financial returns of the Scheme over the long term for the benefit of beneficiaries, and to seek an appropriate benchmark, without resorting to excessively high levels of risk. This policy, which is subject to regular review, has led to an investment structure which primarily invests in pooled funds and includes small allocations to Property and Private Equity alongside a core which is indexed. In due course, it is possible that a further small allocation will be made to active equity investment.
In selecting investment managers, the Trustees have reviewed their corporate governance policies and are satisfied that they reflect the key principles of socially responsible investment. The Trustees operate a programme of regular review of such policies. The investment managers can, and do, influence the social, environmental and ethical policies of the companies in which they invest through shareholder pressure based on these corporate governance principles.
Where the investment managers have a segregated mandate, the Trustees' policy is to delegate responsibility for the selection, retention and realisation of investments to the investment managers, who are required to maximise the overall financial return from the assets under their control within an appropriate risk control framework which takes account of the possible financial impact of social, environmental and ethical issues. Where investments are made in either indexed or actively managed pooled funds, the Trustees recognise that they cannot directly influence the social, environmental and ethical policies and practices of the companies in which the pooled funds invest.
The Trustees also recognise that the Scheme will participate in private equity investments which are different in nature to traditional quoted equities and are intrinsically riskier. The role of the investor in unquoted companies and private equity funds is limited and is not the same as in quoted equities or in pooled vehicles for quoted equities. In respect of our private equity investments, therefore, we expect our managers to act in accordance with the spirit of our SRI policy when making direct investments in unquoted companies as far as practicable.
The Trustees' policy is to delegate responsibility for the exercising of rights (including voting rights) attaching to investments to the investment managers, who are expected to vote on all issues in the best financial interests of their investors, taking account of social, environmental and ethical issues. The Trustees can, however, instruct the investment managers to vote a proportion of the shares held by pooled funds (equivalent to the number of units held by the Trustees as a proportion of the total) in order that their views on a particular issue are registered.
The Northern Rock Pension Scheme and Registered Civil Partnerships
Civil partnerships became legal with effect from 5 December 2005. As a result, the Rules of the Northern Rock Pension Scheme were amended to recognise the existence of such relationships. Any benefits which become payable to civil partners of members of the Final Salary section of the Scheme will be calculated by reference to service accrued after 5 December 2005. Money Purchase members can choose at retirement whether to provide for a joint life pension (which would provide a 50% pension to their spouse or civil partner if the member should die first) or a single life pension (which ends on the death of the member).
The Northern Rock Pension Scheme and Age Discrimination
The Trustees have made appropriate amendments to the Rules of the Scheme with effect from 1 October 2006 to enable members to accrue Money Purchase benefits beyond the previous Normal Retirement Age (NRA) of 60. At the same time, the NRA has been changed to 65, however Scheme members who were in the Company's employment before 1 October 2006 can still choose to retire at age 60 with no change in the way their benefits are calculated.
Better Payment Practice Campaign and Supplier Payment Days
The credit management procedures in place at Northern Rock ensure that the payment systems in place are robust in the light of the requirements of the legislation.
The Company recognises the importance of making creditor payments on time, thereby ensuring that our suppliers do not encounter unnecessary cash-flow problems as a result of late payments being made. Ensuring that the Provisions of the Act have been fully communicated and implemented also ensures that Northern Rock will not incur risks to reputation as a result of non-compliance.
All active suppliers to the Company have been contacted to establish current contact details, confirmation of address, bank details and current payment term requirements. Where necessary the revised information has been built into our payment management system.
In addition all internal Budget Managers have been notified of the existence of the legislation and its relevance to the Better Payment Practice Campaign. All Invoice queries and disputes are therefore recorded, with amended due payment dates agreed. The management method used in Northern Rock to record creditor payment dates against payment due dates has been fully updated with supplier information and the information produced by the system is robust.
A two-week look ahead on payment run parameters ensures late payments are kept to a minimum. The only invoices not meeting the agreed payment date should be those subject to query or dispute.
Call Centres
In today's marketplace, where companies are seeking to improve their profit margins, many are moving their call centres abroad to reduce overheads. However, Northern Rock has invested in using and developing a home grown workforce, not least with the expansion of our Head Office site at Gosforth which enables us to house an expanding employee base, which, in turn, directly contributes to the success of the local economy.
Financial Services and Markets Act
The Financial Services Authority (FSA) was set up under the Financial Services and Markets Act to act as a Regulator within the Financial Services Industry. The Regulatory objectives include promotion of:
- market confidence
- public awareness
- the protection of consumers: and
- the reduction of financial crime
Northern Rock conducts its business in line with the overall standards and principles as set out in the FSA Handbook. To provide additional safeguards for customers, the selling and administration of mortgages and general insurance became regulated by the FSA in October 2004 and January 2005 respectively. We provide comprehensive training to ensure that staff are confident and competent in their dealings with existing and potential customers.
Reputation
If the Company can demonstrate a good standard of ethical behaviour more loyalty can be generated internally. Developing this stance throughout Northern Rock's business dealings can raise staff awareness of ethical issues, which in turn can lead to early identification of problems with cost and reputation savings.
The reputation of the finance industry and the firms within it is important for all of us. Good ethical behaviour can also have a competitive advantage.
Some examples of how Northern Rock can build ethics into real situations are shown in the following sections.
Treating Customers Fairly
The Financial Service Authority has set out high level principles which require regulated firms to treat customers fairly. Regulated firms are required to adopt policies, systems and procedures that ensure the fair treatment of their customers. This is central to Northern Rock's culture and a number of key initiatives have already been implemented to enhance delivery in this respect..
Financial Crime Prevention
Money laundering and terrorist financing cause harm to society as a whole, for example, through drug trafficking, people smuggling, fraud and terrorist acts. Northern Rock's aim is to provide the right framework to help combat financial crime and ensure that staff have a clear understanding of their responsibilities.
To help prevent and detect financial crime, the law requires Northern Rock to verify the identity of its customers. Whilst most customers can provide proof of identity, we also realise that some people may have difficulty in providing certain identification documents because of their social or financial circumstances. To help such customers gain access to banking facilities, Northern Rock uses the flexibility afforded by the Regulations and Industry Guidance and verifies customers' identity using other acceptable documentation.
There is also a legal requirement to report suspicious account activity. As part of Northern Rock's ongoing commitment to combat financial crime, all staff regularly receive training in recognising and reporting suspicious transactions.
The Proceeds of Crime Act 2002
This Act came into force in February 2003. The Act increases the reporting required to prevent and detect financial crime and widened the scope of the Act to include all financial crime. Such increased efforts reduce the negative impacts of crime on individuals and give these individuals more comfort in their dealings with the finance industry.
The Proceeds of Crime Act 2002 consolidated, updated, expanded and reformed the UK criminal law in relation to money laundering. Part 7 deals with money laundering offences and defences.
There is a mandatory requirement to report money-laundering arising out of any criminal conduct regardless of the amount or nature of the offence.
There is a requirement to report all fraudulent transactions relating to, amongst other things, plastic cards, cheques and loans, etc. Arrangements have already been made between main line departments and Investigations Department in Northern Rock for the reporting of fraud.
The Investigations Department must obtain and keep details of all frauds or attempted frauds they are also required to determine whether frauds should be reported to the Serious Organised Crime Agency.
All Northern Rock staff were required to undertake training in relation to the Proceeds of Crime and Money Laundering Act in 2003, 2004 and 2005
Specific refresher training for senior management was completed in 2006.
Data Protection
The Data Protection Act 1998 (DPA) introduced measures to be followed by firms when processing individuals' personal information, Northern Rock follows the eight data protection principles to ensure that customers' information is handled properly and securely. One of the principles gives individuals a number of legal rights. One of them is that individuals have a right to obtain a copy of information held by Northern Rock, whether in paper files or on computer. We provide as much information as is reasonably practicable unless there is a reason why the Company is not obliged to disclose such information.
Direct marketing information is not sent to customers unless we have previously been given consent to do so. Customers have the choice to “opt-out” of being contacted for marketing purposes. All types of media are now covered including telephone, fax, post, internet and e-mail.
Individuals have a number of legal rights in relation to the personal information that the Company holds and processes. Northern Rock advises at the time of collecting information, the information that will be collected, why it is being collected and to whom it may be disclosed. This transparency enables customers to be fully informed about the Company's data processing practices.
Gender Recognition Act 2004
From July 2005, people that have lived under their acquired gender for more than 6 years may apply for a legal change of gender under the Gender Recognition Act.
Northern Rock staff have received instruction in how the Act affects individuals who acquire a new gender and how information about them should be processed.
It is an offence to disclose information during work about a person's application for a gender recognition certificate or about the gender history of a successful applicant.
There are a number of exemptions where disclosure would not be a criminal offence. For example, if the person agrees to such disclosure, or if the information is disclosed for the purpose of preventing or investigating crime, or if the law requires disclosure.
Public Interest Disclosure Act 1998
The Company has reviewed its obligations under this legislation and has agreed with the recognised trade union AMICUS a policy and procedure offering protection against dismissal or other detriment when an employee discloses information which is considered to be in the public interest or "blow the whistle" on fellow employees or directors in certain defined circumstances.
For the purpose of the policy, an "employee" includes anyone contracted to work with, for, or on behalf of the Company. The policy also offers protection to the Company against frivolous, malicious or vexatious allegations and the Company may impose penalties for making false allegations maliciously.
Individuals may seek guidance regarding the Policy from their Manager, Personnel Department or their Trade Union and may seek independent advice. A dedicated telephone helpline is available to staff within the Company Secretary's Department for any member of staff who wishes to speak in confidence concerning any aspect of the procedure. Employees are assured that calls are not recorded.
The policy and accompanying procedure is not intended to preclude matters of concern being raised by the recognised trade union AMICUS through agreed joint consultation procedures.
The policy covers serious concerns of malpractice relating to:
- A criminal offence
- Failure to comply with a legal obligation
- Miscarriage of justice
- Endangerment of a person's health or safety
- Actions against the public interest
- Damaging the environment; and
- A concealment of any of these practices.
No action against staff was required to be taken during 2006 under the Public Interest Disclosure Act
Financial Ombudsman Service (FOS)
The FOS complaint scheme provides a measure of protection for consumers. It provides independent arbitration where a firm's internal complaint procedures have been exhausted and a complainant is still dissatisfied.
On dealing with complaints Northern Rock follows key guidelines in relation to resolving them with speed, efficiency and effectiveness. Additionally, staff are trained to make an objective assessment of the material facts rather than spend time being completely defensive. Compensation can be paid to individuals who have suffered financial loss. Additionally, payments may be made to acknowledge failings even where individuals may not have suffered financially.
See also Customer Service
Legislation and Regulation
Northern Rock already complies with all relevant financial services and regulation and in the upcoming year will adhere as appropriate to additional legislation. These include:
- Mortgage Conduct of Business set out by the Financial Services Authority came into effect in 2004. This was a major development for the mortgage business and set out a regulatory framework for mortgages. The purpose of this legislation was to standardise the procedures for selling, arranging and administering mortgages across the industry. This makes the whole process much easier for customers and will protect their interests .
- The insurance industry is also regulated in a similar way to the mortgage business. Northern Rock will ensure it fully complies with this regulation when it comes into force and is reviewing current processes and procedures to ensure this occurs.
- The Treasury Select Committee is currently reviewing Credit Card Statements. In particular the Committee is looking at the format of the information and APR calculations. Northern Rock will amend any affected statements according to its final judgement.
International Financial Reporting Standards (IFRS)
From the effective date of 1 January, 2005, Northern Rock has operated in full compliance with IFRS requirements.
Human Rights
As a UK based company, we will comply with all UK and international human rights legislation and guidelines applicable to our business operations.
This statement embraces the human rights of our employees, customers and other stakeholders, which we will respect and uphold.
We do not knowingly transact business with any individual business or organisation involved in any actual or potential abuse of human rights. During 2006 we continued to review our business activities and supplier relationships and did not identify any cause for action on human rights issues.