Senior bankers guilty of reckless misconduct
should be jailed, a report on banking commissioned by the UK government, has
The Parliamentary Commission on Banking Standards was established in July 2012, in the wake of the LIBOR
interest rate scandal, to conduct an inquiry into professional standards and culture in the UK
banking sector and to make recommendations for legislative and other action.
The cross-party group's fifth and final report
attacked the lack of accountability of bankers and also said some bonuses should
be withheld for up to 10 years.
The UK Treasury on behalf of George Osborne, chancellor of the exchequer,
welcomed the report and called it "a very impressive piece of work." It
promised to provide a response before the summer recess.
"Where legislation is needed, we have said we will support it, and the banking
bill currently before Parliament can be amended to ensure they are quickly
enacted," a spokesman added.
The 571-page report also proposes that the government review alternatives for
selling off the Royal Bank of Scotland (RBS), including breaking it up, and
demanded action to make the banking market more competitive.
"Too many bankers, especially at the most senior levels, have operated in an
environment with insufficient personal responsibility," the report says.
The report recommends that bust banks should be
allowed to fail and also deals with regulation, the role of the Bank of England,
bank governance and bankers' qualifications. Competition needs to be stimulated
and customer service improved and there is the threat of a full competition
investigation if change does not happen.
“Profound cultural change in institutions as large
and complex as the main UK banks is unlikely to be achieved quickly. Bank
leaders will need to commit themselves to working hard at the unglamorous task
of implementing such change for many years to come,” the report says.
On accountancy rules, the report says the current standard is "not fit for
regulators' purposes", but recognises the UK has little chance of reforming it,
because it is enshrined in UK law under an EU directive. However, it recommends
that banks provide a separate set of accounts drawn up on "prudent principles".
This already happens in Portugal and Brazil, but the incoming governor of the
Bank of England, Mark Carney, does not support the idea.
Report: Changing banking for good - Volume I
Report: Changing banking for good - Volume II
Commenting on the publication of the final report, the chairman of the
Parliamentary Commission on Banking Standards, Andrew Tyrie MP, said:
"Recent scandals, not least the fixing of the LIBOR rate that prompted
Parliament to establish this Commission, have exposed shocking and
“Taxpayers and customers have lost out. The economy has suffered. The
reputation of the financial sector has been gravely damaged. Trust in
banking has fallen to a new low.
“Prudential and conduct failings have many shared causes but there is no
single solution that can restore trust in the industry. The Final Report
contains a package of recommendations that, together, change banking for
“A lack of personal responsibility has been commonplace throughout the
industry. Senior figures have continued to shelter behind an accountability
“Risks and rewards in banking have been out of kilter. Given the
misalignment of incentives, it should be no surprise that deep lapses in
banking standards have been commonplace.
“The health and reputation of the banking industry itself is at stake.
Many junior staff who may have done nothing wrong have been impugned by the
actions of their seniors. This has to end.
“Rewards for success should be better focussed on generating long-term
benefits for banks and their customers. Where the standards of individuals,
especially those in senior roles, have fallen short, clear lines of
accountability and enforceable sanctions are needed. They have both been
“It is not just bankers that need to change. The actions of regulators
and Governments have contributed to the decline in standards.
“Governments need to get on with the job of implementing these reforms.
Regulators and supervisors need rigorously to enforce them. We need better
regulation: this may mean less, not more. And we need a better functioning
and more competitive banking industry.
“High standards will strengthen Britain as a global financial centre.
International co-ordination, while desirable, should not be allowed to delay
reform. We must get on and do what is right for the UK.
- Given the misalignment of incentives in banking, the Commission says it should be no
surprise that deep lapses in standards have been commonplace. The
Commission’s final report, ‘Changing banking for good’, contains a package
of recommendations to raise standards.
- The recommendations cover several main areas including: making senior
bankers personally responsible, reforming bank governance, creating better
functioning and more diverse markets, reinforcing the powers of regulators
and making sure they do their job.
- A new Senior Persons Regime, replacing the Approved Persons Regime, to
ensure that the most important responsibilities within banks are assigned to
specific, senior individuals so they can be held fully accountable for their
decisions and the standards of their banks in these areas;
- A new licensing regime underpinned by Banking Standards Rules to ensure
those who can do serious harm are subject to the full range of enforcement
- A new criminal offence for Senior Persons of reckless misconduct in the
management of a bank, carrying a custodial sentence;
- A new remuneration code better to align risks taken and rewards received
in remuneration, with much more remuneration to be deferred and for much
- A new power for the regulator to cancel all outstanding deferred
remuneration, along with unvested pension rights and loss of office or
change of control payments, for senior bank employees in the event of their
banks needing taxpayer support, creating a major new incentive on bankers to
avoid such risks.
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