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Bankers will face jail for reckless misconduct, says George Osborne Bankers will face jail for reckless misconduct, says George Osborne
(35 minutes later)
The coalition has been accused of failing to implement key recommendations of a high-profile parliamentary report on cleaning up the City, despite having announced that bankers would now face jail for reckless misconduct.The coalition has been accused of failing to implement key recommendations of a high-profile parliamentary report on cleaning up the City, despite having announced that bankers would now face jail for reckless misconduct.
In its formal response to the parliamentary commission on banking standards, the government said it would introduce a licencing regime for top bankers, stop bonuses being paid to bosses of bailed out banks and look at ways to inject more competition into the industry.In its formal response to the parliamentary commission on banking standards, the government said it would introduce a licencing regime for top bankers, stop bonuses being paid to bosses of bailed out banks and look at ways to inject more competition into the industry.
But it failed to adopt ideas for sweeping changes to how the Bank of England is managed and rejected proposals to make banks financially stronger through tightening a measure of capital known as the leverage ratio. Nor would it give a clearer remit to the new regulator, the Financial Conduct Authority.But it failed to adopt ideas for sweeping changes to how the Bank of England is managed and rejected proposals to make banks financially stronger through tightening a measure of capital known as the leverage ratio. Nor would it give a clearer remit to the new regulator, the Financial Conduct Authority.
It prompted Andrew Tyrie, the Conservative MP who chaired the commission set up in the wake of the Libor rigging scandal, to claim key elements of his 114 recommendations in last month's report had been overlooked.It prompted Andrew Tyrie, the Conservative MP who chaired the commission set up in the wake of the Libor rigging scandal, to claim key elements of his 114 recommendations in last month's report had been overlooked.
He said: "Our recommendations are designed to enhance culture and standards in banking. They can only do so if implemented as a package. On an initial reading, the government's response appears to fall short on a number of important points, including the leverage ratio, proprietary trading, improving the governance of the Bank of England and reform of the FCA's objectives."He said: "Our recommendations are designed to enhance culture and standards in banking. They can only do so if implemented as a package. On an initial reading, the government's response appears to fall short on a number of important points, including the leverage ratio, proprietary trading, improving the governance of the Bank of England and reform of the FCA's objectives."
Tyrie also put the government on notice that he planned to pay close attention to amendments tabled to the banking reform bill currently being debated in parliament, which will implement the recommendations.Tyrie also put the government on notice that he planned to pay close attention to amendments tabled to the banking reform bill currently being debated in parliament, which will implement the recommendations.
Tyrie said amendments tabled by the government on Monday to "electrify" the ringfence that banks are required to set up to keep high street operations separate from investment banking were "virtually useless". The commission, in an earlier report, wanted the ringfence toughened to stop the banks gaming the rules.Tyrie said amendments tabled by the government on Monday to "electrify" the ringfence that banks are required to set up to keep high street operations separate from investment banking were "virtually useless". The commission, in an earlier report, wanted the ringfence toughened to stop the banks gaming the rules.
The highest profile recommendation in last month's final report called for a law to jail bankers for reckless misconduct – although lawyers questioned whether it would ever be tested in the courts.The highest profile recommendation in last month's final report called for a law to jail bankers for reckless misconduct – although lawyers questioned whether it would ever be tested in the courts.
Owen Watkins, barrister in the corporate department at Lewis Silkin, said: "The new offence of 'reckless misconduct in the management of a bank' will grab headlines, but I suspect that such a charge is unlikely to be brought in practice".Owen Watkins, barrister in the corporate department at Lewis Silkin, said: "The new offence of 'reckless misconduct in the management of a bank' will grab headlines, but I suspect that such a charge is unlikely to be brought in practice".
Ed Balls, the shadow chancellor, accused his Tory counterpart George Osborne of "continuing to duck the radical banking reform we need".Ed Balls, the shadow chancellor, accused his Tory counterpart George Osborne of "continuing to duck the radical banking reform we need".
Osborne, who like Balls did not attend Monday's Commons debate, said the main recommendations of the commission were being adopted. Osborne, who like Balls did not attend Monday's Commons debate, said the commission's main recommendations were being adopted.
"Cultural reform in the banking sector marks the next step in the government's plan to move the whole sector from rescue to recovery and ensure that UK banks demonstrate the highest standards, and are able to support business and drive economic growth," said Osborne. "The government is determined to raise standards across the banking industry to create a stronger and safer banking system." "Cultural reform in the banking sector marks the next step in the government's plan to move the whole sector from rescue to recovery and ensure that UK banks demonstrate the highest standards, and are able to support business and drive economic growth," he said. "The government is determined to raise standards across the banking industry to create a stronger and safer banking system."
Some of the recommendations can be implemented without changes to the law. The government will ask the Prudential Regulation Authority, which regulates the biggest banks and insurance companies, to look at ways of strengthening rules on blocking deferred bonuses and pensions at bailed-out banks. Some recommendations can be implemented without legislation. The government will ask the Prudential Regulation Authority, which regulates the biggest banks and insurance companies, to look at ways of strengthening rules on blocking deferred bonuses and pensions at bailed-out banks.
But proposals to widen the scope of individuals covered by pay rules were rejected as they go "significantly beyond existing international standards". The government also did not explicitly endorse proposals to force bankers to wait 10 years for their bonuses. "Firms should retain the flexibility to set deferral periods," the government said, although it supported the idea of deferring payouts beyond the usual 3-5 years. But proposals to widen the scope of individuals covered by pay rules were rejected as they go "significantly beyond existing international standards".
The government also responded to calls to analyse the different tax treatment banks receive when holding debt – which fuels private equity deals – and shares in companies. It pledged to conduct a review on so-called allowance for corporate equity by the time of next year's budget. The government response did not explicitly endorse proposals to force bankers to wait 10 years for their bonuses. "Firms should retain the flexibility to set deferral periods," it said, although it supported the idea of deferring payouts beyond the usual 3-5 years.
The government did not rule out extending the new regime, designed to make top bankers more accountable, more broadly across the financial services industry. "The government has not ruled out making the new senior persons regime applicable to the whole financial services industry, not just banking. It also responded to calls to analyse the different tax treatment banks receive when holding debt – which fuels private equity deals – and shares in companies. The Treasury pledged to conduct a review on so-called allowance for corporate equity by the time of next year's budget.
"Whilst this would not include the possibility of jail – that is reserved as a threat for bankers only – this would mean that executives in insurance and asset management would also be under a greater spotlight to be accountable and responsible for their actions. This would open the way for tougher scrutiny of pensions and investment product misselling," said Bill Michael, head of financial services at accountants KPMG. There were also hints that the regime to make top bankers more accountable could be extended across the financial services industry. Bill Michael, head of financial services at accountants KPMG, said: "The government has not ruled out making the new senior persons regime applicable to the whole financial services industry, not just banking.
"Whilst this would not include the possibility of jail – that is reserved as a threat for bankers only – this would mean that executives in insurance and asset management would also be under a greater spotlight to be accountable and responsible for their actions. This would open the way for tougher scrutiny of pensions and investment product mis-selling."
Lack of competition in the industry, dominated by Barclays, HSBC and the two bailed-out banks Royal Bank of Scotland and Lloyds Banking Group, is to be tackled by adopting the Tyrie recommendation to review whether banks could be forced to make it easier for customers to move their current accounts to rival providers.Lack of competition in the industry, dominated by Barclays, HSBC and the two bailed-out banks Royal Bank of Scotland and Lloyds Banking Group, is to be tackled by adopting the Tyrie recommendation to review whether banks could be forced to make it easier for customers to move their current accounts to rival providers.