New rules proposed to hold bankers to account.
The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have suggested new rules to improve accountability among the nation's bankers.
The regulators have set out proposals in a joint paper for a new system to enhance how senior individuals are held to account, including new rules on remuneration that will have a big impact on bankers' bonuses.
Bankers' bonuses
Bankers receive a large amount of their pay in the form of an annual bonus which can dramatically boost their salary.
Under current rules that bonus is usually deferred for between three to five years, during which time it can be clawed back or reduced if needed.
But misconduct like rigging interest rates can take longer to come to light, so the regulators have suggested a new policy where bonuses may be clawed back up to seven years later.
This would apply even if the bonus had been paid out already.
Individual accountability
The paper also sets out proposals on improving individual accountability.
These include a new Senior Managers Regime which will clarify responsibility of senior individuals.
A new Certification Regime is also being suggested, requiring firms to assess fitness and propriety of staff in positions where the decisions they make could pose significant harm to the bank or any of its customers.
And the regulators want a new set of Conduct Rules in place at relevant firms, setting out the standards of behaviour for employees.
Why change is needed
The FCA and PRA says the behaviour and culture within banks played a major role in the 2008-09 financial crisis.
This culture has also been blamed for scandals like PPI mis-selling and the attempted manipulation of LIBOR.
Yet the regulatory framework in place at the time wasn’t clear on how to make individuals accountable.
So the Parliamentary Commission on Banking Standards was created to look at these issues. Last year it found public trust in the banking sector was at an all-time low and recommended measures to restore trust and improve culture.
It suggested a new framework holding individuals to account as well as measures on remunation and whistleblowing, which the FCA and PRA have now set out.
The next steps
The FCA and PRA have opened their proposals on accountability and remuneration in the banking sector for consultation.
They are seeking responses from the ‘relevant firms’ i.e. UK-regulated banks, building societies, credit unions and some investment firms that will be impacted by the changes.
Both regulators will be taking responses until Friday 31st October 2014.
The final rules will be published in a Policy Statement at the end of the year.
What do you think? Will these rules improve trust in banks? Do they go far enough? Let us know your thoughts in the comments box below