The chairman of the Treasury Committee and former chairman of the Parliamentary Commission on Banking Standards has called for risk and reward to be much more closely aligned in the banking sector, following yesterday’s announcement from the Bank of England.
Responding to yesterday’s (30 July) Prudential Regulation Authority and Financial Conduct Authority joint consultation on the new banking regulatory regimes and the Bank of England’s revised clawback proposals, Andrew Tyrie said his committee will be monitoring the implementation of these proposals in the months ahead.
He said: “Right at the heart of these proposals were two key principles: bankers should be rewarded for doing the right thing—providing benefits to their customers, shareholders and the economy—not the wrong thing; individuals should take direct responsibility for their actions.”
Mr Tyrie conceded that banks are in the business of risk and need to be to serve the interests of their customers and the wider economy, but added that risk and reward need closer alignment.
“Individuals should be fully rewarded only when it is clear that those rewards have been earned. Far too often, some bankers took bonuses for business decisions which put unacceptable risks on their firms’ balance sheets.
“Their shareholders, and in some cases taxpayers, were left holding the baby. That is why the commission concluded that long deferral, and in cases of serious misconduct clawback, may be required.”
Mr Tyrie also commented on the illusion of bank safety that had been created with the ‘approved persons’ regime, stating that it amounted to little more than a box-ticking exercise.
He said: “It is why the commission concluded that reform of regulation is required almost as much as it is for banks. It is also why the approved persons regime should be replaced by the regulatory approach set out with these proposals.
“Each financial institution will require a somewhat different approach. Implementing the proposals requires judgement from both banks and regulators. It is the job of banks to identify those staff who can do harm to markets and customers. It is the job of regulators to ensure that they have done so.”
