The UK banking market needs ‘radical reform’ to improve standards across the banking industry, according to a banking report released today.
The Banking Commission has today published its report on the banking industry, ‘Changing banking for good’, with a number of recommendations aimed at raising standards.
The recommendations cover a number of areas including: making senior bankers personally responsible, reforming bank governance, creating better functioning and more diverse markets, and reinforcing the power of regulators and making sure they do their job.
The key recommendations
- A new Senior Persons Regime (replacing the Approved Persons Regime) to ensure that the most important responsibilities within banks are assigned to specific, senior individuals so they can be held fully accountable for their decisions and the standards of their banks in these areas.
- A new licensing regime underpinned by Banking Standards Rules to ensure those who can do serious harm are subject to the full range of enforcement powers.
- A new criminal offence for Senior Persons of reckless misconduct in the management of a bank, carrying a custodial sentence.
- A new remuneration code better to align risks taken and rewards received in remuneration, with much more remuneration to be deferred and for much longer.
- A new power for the regulator to cancel all outstanding deferred remunerations, along with uninvested pension rights and loss of office or change of control payments, for senior bank employees in the event of their banks needing taxpayer support, creating a major new incentive on bankers to avoid such risks.
Which? cautiously welcomes report
Peter Vicary-Smith, chief executive of Which?, said: ‘These proposals could signal the start of the big change in banking that consumers have been crying out for, but more will need to be done to transform the toxic culture at the heart of this industry.
‘We welcome the measures on competition and greater senior accountability. But while the report is tough on punishment, it is too weak on prevention. The culture must change to prevent scandals happening in the first place.’
Independent code of conduct needed
Mr Vicary-Smith also added that to bring about the necessary cultural change, ‘the government must go further and bring about a completely independent code of conduct. Anything short of this will have no credibility with the public, who have bailed out the banks and endured shoddy service, mis-selling and sky high charges for too long.
‘We now look to the Government to accept and implement reforms that help consumers without any further delay. We cannot afford to wait for a generation to see integrity and competition injected into banking.’
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Why has this report been carried out and what does it cover?
The Parlimentary Commission on Banking Standards was created in July 2012 to conduct an inquiry into professional standards and culture in the UK banking market. The recommendations made in the report look at the wider banking industry. Proposals are set around five themes:
- making individuals more responsible in the banking industry, particularly at the most senior levels
- ensuring banks are responsible for its own safety and soundness and maintaining standards
- empowering customers by creating banking markets that are better functioning and more diverse and require banks to raise standards
- reinforcing the responsibilities of regulators in deploying their current and proposed new powers
- laying down the responsibilities of government (current and future)
What else does this mean for consumers?
Recommendations made in the Banking Commission report also include calling on the government to establish an independent panel of experts to find ways to making switching personal bank accounts easier. It wants to the government to look at the feasibility, costs and benefits of changes to better enable customer choice and current account portability.
The major banks are expected to work together to come to a voluntary arrangement which sets minimum standards for the provision of basic bank accounts. Under the Commission’s proposals all customers should be able to open a basic bank account that includes:
- access to the payments system on the same terms as other account holders
- money management services
- free access to the ATM networks
The Commission is calling for banks to guarantee that if an individual can satisfy a clearly-defined set of eligibility criteria, they will not be refused a bank account. It also wants the banks to agree on a consistent approach. If the banks cannot reach a satisfactory voluntary agreement within a year, the Commission recommends that the government step in and make it a statutory requirement.
It also wants peer-to-peer and crowdfunding platforms to act as a source of competition to mainstream banks.