The Parliamentary Commission on Banking Standards has received widespread praise for its recommendations for reform. It’s almost universally acknowledged that public confidence in the financial services sector needs to be rebuilt, and the PCBS has certainly laid down a series of sensible proposals. The issue for many observers is just how seriously these proposals will be taken and how rigorously they will be enforced. So far, messages seem to be mixed.
The Government has pledged to work with regulators to ensure that bankers’ pay is more reliably performance-related. These provisions will allow bonuses to be deferred for up to ten years with a clawback provision for bonuses awarded to employees of banks which have benefited from public funding.
Leaving aside the overdue acknowledgement that public money being doled out unjustly will inevitably incite public anger, it seems sensible to admit that when banking cycles can last 10 years, awarding bonuses based on a six or twelve month period of performance always looked generous, with or without the benefit of hindsight.
Government supporters have rushed to point out that reckless behaviour will be subject to criminal proceedings. But many in the industry believe that the criminal offence of “recklessness” would be almost impossible to prosecute. Without being too heavy handed, a deterrent must actively deter. How many professional sportsmen or women would continue to play scrupulously by the rules if we removed the threat of red cards or disqualification? The difficulty of proving reckless intent was flagged up in an internal consultation document last summer, and another twelve months have done little to clear the mist. Critics of the government might suggest that those who breach PCBS guidelines can expect a stern lecture followed by…well, another stern lecture. Perhaps with some finger wagging for embellishment.
The Government’s continued insistence that signing on to uphold higher fiscal standards will be voluntary has also sent hearts sinking. It’s reminiscent of an angry sergeant major yelling at a group of men that anyone breaking his rules will be thrown behind bars, then adding that none of the men has to sign up for military service if they don’t want to.
Is this a hollow triumph of style over substance? Rejection of more detailed parliamentary oversight of these regulations suggests that it might be.
The PCBS report was entitled ‘Changing banking for good’. The dual meaning has escaped no-one, but the divided purpose in its enforcement is more of a worry.
Remarking on the Government’s response to the report, British Banking Association Chief Executive Anthony Browne said:
“The reforms announced today are far-reaching, challenging and will have a profound impact on the banking industry. We will work constructively with Government and the regulators to implement these changes, which we see as the final step in repairing the banking system.”
Are these the words of a chastened man speaking for a chastened sector, or the relief of someone who knows that he and his colleagues have been given an easier ride than they might have been expecting? Only time will tell.