A NEW body set up to improve the standards and reputation of the banking industry has run into controversy after appointing an "insider" to a list of members who are supposed to be independent of the sector.

Lady Susan Rice, who only retired in December as managing director for Scotland for Lloyds Banking Group, has been named as one of nine "non practitioner" members of the Banking Standards Board.

She held leading roles at the group and its predecessor Lloyds TSB since 2000.

Labour's John Mann, a member of the Commons Treasury Select Committee, said it was "inappropriate" and that she was "entirely a banking insider", adding that the appointment "rather defeats the objective" of having independent members.

Mann said: "It's bankers looking after bankers again. I have nothing personal against her but it is fundamentally wrong that a recent former banker should be put in as a non-banking person – especially considering all the problems Lloyds have had."

The group, which includes Halifax and Bank of Scotland, has faced scandals including the mis-selling of payment protection insurance (PPI) - an affair for which it has so far set aside £24 billion.

Last year it was fined £218 million over rate-rigging practices including ripping off the Bank of England over its financial life support scheme, behaviour described as "reprehensible" by Bank governor Mark Carney.

It remains more than one-fifth taxpayer owned after its £20 billion bail-out at the height of the financial crisis.

Rice holds a number of other roles, which include chairing the Scottish Fiscal Commission, which reviews the finances of the devolved government, as well as being a non-executive director at Sainsbury's.

A spokeswoman for the Banking Standards Board said: "'Lady Rice no longer has a banking role but brings a range of valuable experience, including from her time at Lloyds, that will assist the board particularly when it comes to professional standards.

"She is not a current banking practitioner."

Rice is being appointed to the board as part of a "high-profile line-up" newly announced.

The board, set up in the wake of a review by former CBI chief executive Sir Richard Lambert last year, will be made up of nine "non-practitioners" and five representatives from the sector.

It is led by Dame Colette Bowe, former chair of regulator Ofcom, with chief executive Alison Cottrell hired earlier this year from the Treasury.

Lord McFall – the former Labour MP who once headed the Commons Treasury select committee – will be deputy chairman.

Other members include Sir Brendan Barber, chair of the conciliation service Acas and the former head of the TUC, as well as Citizens Advice chief executive Gillian Guy.

Paul Johnson, director of the Institute for Fiscal Studies – economic think-tank known for its scrutiny of Government finances – and Baroness Onora O' Neill, chair of the Equalities and Human Rights Commission, are also on the board.

Joining them is David Urquhart, Bishop of Birmingham, who was one of 26 bishops who last year signed a letter condemning "punitive" welfare reforms which they said had forced people into poverty.