IN FEBRUARY, George Osborne announced that 2013 would be “the year that we reset the banking system.” Last week, the chancellor outlined a blueprint for achieving just this objective by publishing the government’s response to the Parliamentary Commission on Banking Standards.
In order to unpick what this means for the future of Britain’s banking industry, it is important to state what may seem obvious: the UK cannot maintain its world-leading position as an international financial hub without the right regulatory framework and the right incentives to encourage ethical behaviour. Over 2m people work across the UK in financial and professional services, so it is crucial that the industry and policymakers work in partnership to create effective regulation to maintain the UK’s competitive and reputational advantage. I welcome, therefore, the work of the Banking Commission and its efforts to drive up standards to improve financial stability.
Beyond the banker bashing headlines, the government has recognised there are clearly some sensible suggestions on incentives, improved accountability, and increased competition designed to encourage long-term thinking across the industry. Ultimately, however, the effectiveness of these measures will be contingent on them being drafted and implemented through dialogue with practitioners.
The City has always believed that criminal actions should meet with appropriate sanctions. People who break the law should face legal proceedings regardless of sector.
But it is important that regulators do not seek to impose such punishments on those who make genuine mistakes. Fear of failure can stifle innovation. Any financial transaction – no matter how small or large – involves an element of risk.
It is crucial that a common-sense approach to governance and regulation emerges, helping to create an environment where there is a healthier relationship between parts of the City and customers. That means adhering not just to the letter of the regulation, but to the spirit as well.
Huge changes have been made to the regulation of the banking sector over the last five years, so ripping up the system and starting again is unnecessary. The government must also ensure that the impact of past reforms has been properly assessed before introducing any additional regulation, to ensure efficiency and to avoid a situation where regulatory priorities lack clarity. Certainty over the shape the sector will need to take over the next few years will improve the ability of banks to make long-term plans and undertake comprehensive risk management procedures.
The government’s plans should help kickstart this process, and I hope the government’s response to the Banking Commission means we can now hit the reset button on the relationship between the City, customers and regulators so that we can move forward together.
Mark Boleat is policy chairman at the City of London Corporation.