* Banks decided to create standards body last September
* Chairman, CEO of new body should be non-bankers - Lambert
* Most of new body's board should be non-bankers, he says
* Body should be up and running by end of year - Lambert
By Matt Scuffham
LONDON, Feb 10 (Reuters) - A new standards body for British bankers should be led by people from outside the industry to establish its independence and credibility, the man tasked with setting it up said on Monday.
Britain's biggest banks pledged to set up the body last year after the industry was hit by scandals including the rigging of benchmark interest rates, breaches of anti-money laundering rules and the mis-selling of loan insurance and complex interest rate hedging products.
Richard Lambert, former director general of the Confederation of British Industry, said non-bankers should be appointed as chairman and chief executive of the organisation and most of its board should come from outside banking.
"The credibility of the new body will be built on the independence of its board, and on widespread industry participation. Its first task will be to define standards of good conduct, and to help drive these into all business activities," he said in a consultation paper.
Politicians have attempted to placate public anger and tighten controls over an industry blamed for excessive risk-taking in the lead-up to the 2008 financial crisis.
The reform of Britain's banks has been hotly debated since 66 billion pounds ($108 billion) of taxpayers' funds was pumped into Royal Bank of Scotland and Lloyds to keep them afloat, and a committee of lawmakers recommended the creation of a professional standards body last June.
Three months later, Lambert was asked to set up the standards body up by the chairmen of Britain's five biggest banks - HSBC, Barclays, Lloyds, RBS and Santander - and its biggest customer-owned lender, Nationwide.
The body, which will be funded by the banks themselves, will set codes of conduct and behaviour that apply to all bank employees and will work closely with regulators.
Lambert said the aim was to have the new body up and running by the end of 2014, but he acknowledged the scale of the task ahead.
"It will take years to change the culture of the banking industry, and so to demonstrate beyond doubt the impact of the new organisation. The objective is a measurable and continuous improvement in the conduct and culture of banks and building societies doing business in the UK," Lambert said.
Participating banks will have to publish a report each year on whether they are meeting the new standards.
Lambert proposed that a panel of four people, from outside the industry but possibly including a senior central banker, should appoint a chairman and chief executive for the new body.
In an interview with Reuters, he expressed an interest in taking on the role himself but cautioned that the decision would not be made by the banks.
"I would be happy to be the chairman (but) the point I make very strongly in the report is that the chairman must not be appointed by the banks. I have been appointed by the banks and I would see myself as a sort of interim," he said.
Lambert proposed a board of no more than 12 people be set up to run the new body - comprising a minority of bankers and majority of non-bankers.
He said the bankers on the board should bring knowledge of different sectors within the industry but have no conflict of interest, suggesting recently retired senior executives might be obvious candidates.
For the non-bankers, Lambert suggested "people with experience as investors, members of consumer and employee groups, small business people and the like".
Lambert said it was important that international banks operating in London also participated in the new body and said he was encouraged by the initial reaction.
"Most people I've met from international banks have been positive and want this to work," he told Reuters.