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* BoE governor Carney to oversee chairman appointment
* Carney urges all banks operating in UK to participate
* Lambert expects "good number" of overseas banks to join
* Banks must report on culture, practices each year (Adds industry reaction, further details)
By Matt Scuffham
LONDON, May 19 (Reuters) - Bank of England governor MarkCarney has backed a plan by Britain's biggest banks to set up anew body to improve standards in an industry rocked by a stringof scandals.
The Banking Standards Review Council (BSRC), funded by butindependent from the banks, is to be set up this year afterbanks accepted recommendations from Richard Lambert, a formerdirector general of the Confederation of British Industry.
Banks are trying to repair their image tarnished by the 2008financial crisis and scandals including the rigging of benchmarkinterest rates, allegations of foreign exchange market riggingand the mis-selling of loan insurance.
"Rebuilding confidence and trust in the banks is especiallyvital in the UK, because of the size of the banking system andthe importance to the economy of London's role as aninternational capital market," Lambert said on Monday.
Carney urged all banks that operate in Britain, bothdomestic and foreign, to support the initiative.
"We need a financial system that is safe, fair and acts withintegrity. The Bank of England is doing its part to ensuresafety and soundness. Integrity, however, cannot be regulated.It must come from within," he said.
The council will work with banks to create a new code ofpractice for the industry. But Britain's financial regulatorwill retain responsible for disciplining banks for wrongdoing.
Britain's biggest six banks - Barclays, HSBC, Lloyds Banking Group, Royal Bank of Scotland, Santander UK and Standard Chartered -and its largest customer-owned bank, Nationwide, askedLambert to come up with proposals for the body last year.
The Parliamentary Commission on Banking Standards, a grouplooking into ways to reform banks, supported the creation of aprofessional standards body in its final report last year butsaid it could take a generation for it to become fullyeffective.
"While this ambitious long-term project gets under way,wide-ranging reform is needed now on a number of fronts tosecure improvements to standards," the Commission's ChairmanAndrew Tyrie said on Monday.
CREDIBILITY
The BSRC will champion good practice, requiring banks tocommit to improving their culture and to report back on theirperformance to the public each year. It will also produce anannual report highlighting progress made the industry and byindividual banks, and what more needs to be done.
"While it is a step in the right direction, withouteffective disciplinary teeth, it may fall short ofexpectations," Iain Coke, head of faculty at the ICAEW, anaccounting body.
Clifford Smout, a partner specialising in regulatorystrategy at accounting firm Deloitte, said the body'scredibility would only come as it develops a track record.
"The key challenge will be in embedding new codes of conductso that these affect the way that individuals behave throughouta bank," he said.
Lambert told Reuters he expected a "good number" of thelarge international investment banks" operating in London wouldsupport the new body.
Carney will chair a panel of "respected figures" fromoutside the industry set up to appoint a chairman of the counciland to ratify the appointment of its chief executive.
"The appointment of the Governor of the Bank of England tolead the selection process for the new chairman sends a powerfulsignal about the clout that the new body will have," its ChiefExecutive Anthony Browne said.
Lambert, 69, will serve as interim chairman but ruledhimself out of the running to take the role permanently, sayinghe could not commit to the two to three years it will take toestablish the new body and was not sufficiently independent.
The council, which will cost between 7 million and 10million pounds ($16.83 million) a year to run, will setstandards of good practice that may include whistle-blowingprotocols, processes for handling small businesses in distress,dealing with conflicts of interest and managing high-frequencytrading.
Lambert stopped short of following the example of the DutchBanking Association, which this year ordered its 90,000 membersto swear an oath, saying it would not have been credible.
He said the new body was not replicated elsewhere in theworld and had attracted interest from authorities in Australiaand Canada.
($1 = 0.5942 British Pounds) (Reporting by Matt Scuffham; Editing by John Stonestreet andJane Merriman)
