New UK banking reforms on the cards

Tougher tests have been proposed to ensure that senior UK bankers whose conduct could wreck their bank or seriously harm customers can be held accountable.

Under the proposals bankers would then be subject to new rules reinforcing the balance between remuneration and long-term risk.

The proposals are submitted in a report from the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), bodies that oversee the UK’s financial activities.

They include measures to clarify senior managers’ responsibilities, strengthen the regulators’ ability to hold individuals to account, require banks to vet senior employees for fitness and propriety, and compel companies to assess staff whose decisions could harm the bank or its customers and to draw up codes setting ethical standards.

On remuneration the report says companies should defer variable payments such as bonuses for five or seven years depending on seniority, and should be able to recover senior managers’ payments if risk management failure or unacceptable conduct is detected.

The proposals, now out for consultation, follow last year’s recommendations from the Parliamentary Commission for Banking Standards and the Banking Reform Act.

Andrew Bailey, the PRA chief executive, commented: “Holding individuals to account is a key component of our job as regulators of banks. The combination of clearer individual responsibilities and enhanced risk management incentives will encourage individuals in banks to take greater responsibility for their actions.”

Martin Wheatley, the FCA chief executive, said: “How a firm conducts its business and treats its customers must be at the heart of how it operates. This has to start at the top.”

Another watchdog has suggested a bankers’ oath, similar to the doctors’ Hippocratic oath to improve professionalism in the sector.
The oath reads: “I will do my utmost to behave in a manner that prioritises the needs of customers. It is my first duty to provide an exemplary quality of service to my customers and to exhibit a duty of care above and beyond what is required by law.”
Phillip Blond, the director of ResPublica, an independent think tank that proposed the oath, said: “Britain’s bankers lack a sense of ethos, and the institutions they work for lack a clearly defined social purpose.”

An oath would “finally place bankers on the road to absolution”.

The idea has been put to the British Bankers’ Association (BBA), the Building Societies Association and the Banking Standards Review Council.

Paul Chisnall, the BBA’s executive director for financial policy and operations, said: “Restoring trust and confidence is the banking industry’s number one priority.”

He thought the oath could be “part of the answer”.