Osborne looks to legislate jail and bonus clawback for "reckless" bankers

UK chancellor George Osborne has announced his support for a set of sweeping reforms designed to change the culture of banking, including the jailing of “reckless” bankers and long-term bonus deferrals.

In a response to a report from the Parliamentary Commission on Banking Standards chaired by Conservative MP Andrew Tyrie, the UK government endorsed the majority of key proposals, summing up the key points as follows:

As a result of the proposals the government intends to strengthen standards in banking by:

  • Introducing a criminal offence for reckless misconduct for senior bankers. Those found guilty could face a jail sentence.
  • Working with the regulators to ensure bankers’ pay is aligned with their performance, including allowing bonuses to be deferred for up to ten years and enabling 100pc claw back of bonuses where banks receive state aid.
  • Introducing a tough new regime governing the behaviour of senior bank staff and new rules to promote higher standards for all bank staff.
  • Reversing the burden of proof so that bank bosses are held accountable for regulatory breaches within their areas of responsibility.
  • Working with the regulators, to strengthen corporate governance to ensure that firms have the correct systems in place to identify risks and maintain standards on ethics and culture.

Competition in the banking sector will also be strengthened by:

  • Providing the Prudential Regulation Authority (PRA) with a secondary competition objective to strengthen its role in ensuring we have banking markets with effective competition that delivers good outcomes for consumers. This will be in addition to the Financial Conduct Authority’s existing competition objective.
  • On top of introducing 7-day account switching from September this year the government will ask the new payments regulator, once established, to urgently examine account portability and whether the big banks should give up ownership of the payments systems.

However, the government has rejected the suggestion that UK Financial Investments (which manages the UK government's stakes in lenders) be scrapped because of political interference, and that tighter limits should be imposed on the leverage ratio of banks.

UKFI is staffed by highly expert professionals with extensive experience in the banking sector. The Government continues to value the role of UKFI in managing the Government’s shareholdings in state-owned banks.

The House of Commons will debate the relevant amendments to the Banking Standards Bill this afternoon.