Member Article

Reckless bankers should face prison, say MPs

Senior bankers who have acted recklessly should face prison sentences, a new report on cleaning the banking industry up has suggested.

The two-volume document from the Parliamentary Commission on Banking Standards calls for more emphasis on personal responsibility, which has been “lacking” in the industry, the body say.

MPs called for a new criminal offence to be created: “reckless conduct in the management of a bank,” which would carry an automatic prison sentence.

It suggested a new system of accountability whereby bank responsibilities are assigned to specific senior individuals.

Bankers found guilty of reckless behaviour should also have their pay recovered through civil proceedings, the report went on to say.

Chairman of the Parliamentary Commission on Banking Standards, Andrew Tyrie MP, said: “Recent scandals, not least the fixing of the LIBOR rate that prompted Parliament to establish this Commission, have exposed shocking and widespread malpractice.

“Taxpayers and customers have lost out. The economy has suffered. The reputation of the financial sector has been gravely damaged. Trust in banking has fallen to a new low.

“Prudential and conduct failings have many shared causes but there is no single solution that can restore trust in the industry. The Final Report contains a package of recommendations that, together, change banking for good.

“A lack of personal responsibility has been commonplace throughout the industry. Senior figures have continued to shelter behind an accountability firewall.

“Risks and rewards in banking have been out of kilter. Given the misalignment of incentives, it should be no surprise that deep lapses in banking standards have been commonplace.

“The health and reputation of the banking industry itself is at stake. Many junior staff who may have done nothing wrong have been impugned by the actions of their seniors. This has to end.”

The Institute of Directors disagreed with the recommendations, suggesting they could prove to be counter-productive.

Dr Roger Barker, director of Corporate Governance and Professional Standards at the IoD, said: “The recommendation that senior individuals are given legal responsibility for a particular area of a bank’s operations is flawed. Effective board governance involves making decisions and taking responsibility as a group. If individuals focus only on their own exposure, it will actually make them less likely to challenge other members of the board and weaken the organisation.

“This move could be counter-productive. The risks associated with taking on personal liability could make it hard to recruit senior people and potentially drive up pay, which is clearly not the Commission’s intention.”

Competitiveness of the UK sector was also criticised, and a lack of choice for retail and business customers was highlighted.

John Cridland, CBI director-general, said: “Putting customers in the driving seat to choose which service works best for them improves competition. Moves to improve the transparency around the price of products and services are welcome and alongside seven-day switching, will help restore confidence in the competitiveness of retail banking.

“To ensure that potential barriers to entry to the market for new banks are reduced as far as possible, a competition objective for the Prudential Regulation Authority makes sense.

“We’re pleased that the Commission has recognised the importance of alternative sources of finance to help growing businesses. We welcome the recommendation for the Treasury to look at how the tax system can support alternatives like peer-to-peer lending and crowdfunding, to ensure that they can compete on a level-playing field with traditional providers.

“Any further study of the retail and small and medium-sized business banking markets must avoid the well-trodden ground of many previous reviews.”

Among other key recommendations of the report was a call to make rewards received in pay, and more deferring of this pay.

This was posted in Bdaily's Members' News section by Tom Keighley .