x

Join our Mailing List

Subscribe to our mailing list to receive regular email updates of ResPublica's work, upcoming events and recent blogs from the Disraeli Room.

The Disraeli Room

The Disraeli Room

Blog Post

Regulating Banks VS Regulating Bankers

17th November 2014

As argued in ResPublica’s previous report, Virtuous Banking, [1] our financial bodies have the potential to be among society’s most transformative institutions. By placing ethos and purpose at the heart of finance, our financial institutions would be able to reclaim their civic purpose and begin again to promote growth and empower their communities and society.

However, as this week’s new fines have shown, the days of ‘casino banking’ are not behind us.

In the last year alone, 5 years on from the crisis, we have seen a range of fines for British banks for offences ranging from LIBOR rigging to FOREX manipulations, Sanctions violations and Securities fraud. Some of these crimes took place as recently as a year ago.

This endless procession of scandals serves to highlight a persistent moral bankruptcy at the heart of our banking sector. While regulators have spent the years since the 2007 financial crisis bullet-proofing banks through structural reform, they and we have failed to tackle the culture of greed and carelessness that set the conditions for the collapse.

Surely, if we continue only to pursue sanctions and fines at an institutional level, we will leave in place the conditions for another financial crisis. Mark Carney, Governor of the Bank of England, has already acknowledged that directors and top executives need to be made more responsible for the behaviour of their staff and that the recent reforms to curb bank pay were not enough to prevent another financial crisis:

“One of the legacies of the crisis in the US and by and large in the UK was that the individuals who ran the institutions got away. They got away with their compensation packages, they got away without sanction. Maybe they were not at the best tables in society after that, but they’re still at the best golf courses. That has to change.” “It’s very hard to design compensation for systemic outcomes, to internalise financial stability risks. So you need something more.” [2]

The current framework of Corporate Governance in the UK is based primarily on the UK Corporate Governance Code, which is maintained by the Financial Reporting Council. The code is based on the ‘comply or explain’ model at an institutional level. This has largely been a success as it has offered flexibility to firms while giving power to shareholders. In addition, structural reforms to create ‘Chinese walls’ and ring-fencing have gone some way to prevent conflicts of interest and incidences of insider trading.
However, measures which focus on individual conduct remain unsatisfactory. The Financial Conduct Authority’s (FCA) ‘Fit and Proper test for Approved Persons’ relies on a self assessment which is ultimately subjective and remains open to abuse. And while some bodies already offer ethical standards partnered with investments skills and education and promote various codes and standards, these models are not pre-requisites for the profession.
Perhaps it is time for us to introduce statutory standards for individuals in banks in order to protect the taxpayers? Other professions in the UK require registry or licensing form solicitors to doctors and accountants for the protection of customers, clients and patients. If individuals are guilty of malpractice the are struck-off the registers and fined and their careers never recover.

We have identified the risk, now maybe it is time to put in place the proper deterrent.


Leave a Reply

Your email address will not be published. Required fields are marked *

Time limit is exhausted. Please reload CAPTCHA.

Championing renewed leadership in governance and business practice

It didn’t get to the point where we saw ‘Save Unilever’ held aloft on placards outside Downing Street, yet there was widespread unease about Kraft’s...

Industrial Strategy: A positive start but more must be done

The Government revealed their industrial strategy this week, with three main aims: Build on our strengths and extend excellence into the future; Close the gap...

Who can give the modern Cathy a home?

It’s 50 years since Ken Loach’s groundbreaking film, Cathy Come Home, documented the inhuman effects of homelessness. Without a home, as his heartbreaking film shows,...

We need a manufacturing resurgence more than ever. How can we bring it about?

There’s been a familiar narrative emerging since Thursday’s vote – this was the left behind white working class getting one over the London-centric political and...

The economic impacts of a Brexit would make us more, not less, reliant on other countries

Yesterday’s letter from Ford to its employees was the latest chapter in the economic debate on Britain’s EU membership, which has largely focused on the...

Mutuals and Co-ops Can Be The Very Best Option!

The Quest for John Lewis Quality Public Services for Wales Wales has often been characterised by a radical political tradition that exists to promote a...

Book Review: ‘Taking Power Back: Putting people in charge of politics’ by Simon Parker

Nearly a year before the 2015 General Election, the Chancellor George Osborne announced that the country needed a ‘Northern Powerhouse’: an attempt to bring together...

Remain: The truly patriotic choice

In its latest volley of relentless negativity, the Remain campaign has targeted the grim outlook for UK trade were we to leave the EU. Last...

Becoming ‘the best place in the world’ for dementia treatment

This blog was originally published by Age UK   The Prime Minister wants the UK to be ‘the best place in the world to undertake research...