The Parliamentary Commission on Banking Standards has published its Final Report – ‘Changing banking for good’. Here we take a look at some of the proposals we think will be in the spotlight.
New criminal offence
A new criminal offence of reckless misconduct in the management of a bank is proposed. This will apply to senior bank staff, for use in the most serious circumstances. It works alongside a Senior Persons Regime, where key responsibilities in banks are assigned to specified individuals, and a Licensing Regime, to apply to other staff whose actions “could seriously harm the bank, its reputation or its customers”, Likely to be popular with the public, there will be legal debate about how to enforce this.
Bang goes the bonus?
A new code is proposed so that financial incentives reflect long term risks. Much of this focuses on deferred remuneration, such as holding back bonuses for up to 10 years. There is no great surprise at this proposal – the “banker’s bonuses” controversy has been rumbling on for some time.
The report criticises Government interference in the running of the two partially state-owned banks, saying “the current arrangements are clearly not acceptable.” The chancellor has already used his Mansion House speech to announce that he is considering hiving off RBS’s toxic loans into a “bad bank”, noting, with hindsight, that this should have probably happened in 2008. Expect differing views on whether it’s too late for this to be effective.
Less box ticking
The report raises concerns that focus on a detailed series of rules has resulted in poor risk-assessment and a false sense of security. It calls for a move away from the box-ticking approach to regulation and a greater emphasis on exercise of judgement by senior regulatory staff together with greater accountability. This is, on the whole, a welcome approach but how it will work in practice remains to be seen.
Power to the people
The Commission has given a lot of attention to the consumer and this will generally be well received. Emphasis is placed on the right to a basic account for all and free access to ATMs. It’s a subject on which many banks have already come to agreement and this puts pressure on others to do the same. If there is no voluntary agreement in the next year, recommendation is that the Government step in.
There is also emphasis on the need to increase competition in retail banking and a call for an immediate study on reforms to bank account portability, making it easier and cheaper for consumers to switch accounts.
Women in banking
The report calls for more women on the trading floor and recommends banks publish details of gender breakdown in their trading operations in annual reports. With the push to get more women on FTSE 100 boards and an ongoing campaign to keep women on banknotes already catching press attention, this suggestion is one we may well hear more about.
The report is receiving mixed commentary across the legal and financial sector with some welcoming its wide-reaching proposals for cultural reform in the sector and emphasis on personal responsibility and others arguing that too many of the proposals are unworkable. The Commission is concerned with a lack of personal responsibility and accountability, particularly at the most senior level in banks and many of the proposals aim to address this. Whatever your view on its conclusions, the report is certainly all-encompassing and plain talking. It seeks radical reform in the sector and makes proposals which it claims will “enable trust to be restored in banking“.