Carney demands 'fundamental change' in UK banking system

Banks in the UK should face radical reform including further curbs on pay after a succession of major scandals showed misconduct was not just the fault of a “few bad apples”, Bank of England governor Mark Carney said today.

Mr Carney said fundamental change was needed including the ability to recover fixed pay from high-flying financiers, in addition to new rules allowing bonus claw-backs.

It comes days after six banks were fined £2.6 billion after global regulators found traders had clubbed together to rig foreign exchange markets. That came in the wake of the Libor-rate rigging scandal which had already cost firms billions in penalties.

Mr Carney said: “The repeated nature of these fines demonstrates that financial penalties alone are not sufficient to address the issues raised.

“Fundamental change is needed to institutional culture, to compensation arrangements and to markets.

“The succession of scandals mean it is simply untenable now to argue that the problem is one of a few bad apples.

“The issue is with the barrels in which they are stored.”

In a speech in Singapore, Mr Carney said in some cases the link between those at the top of the bank who should have set out the “cultural norms” among employees had been broken.

The public had been “rightly angered” that leaders who had been responsible for “sowing the seeds of the crisis” and allowing wrongdoing to develop had been able to walk away.

New measures to hold individual executives and board members to account as well as claw back bonuses after up to seven years are being introduced in the UK but Mr Carney said additional reforms may be necessary.

“Standards may need to be developed to put non-bonus or fixed pay at risk,” he said, backing the idea of certain staff being paid partly in “performance bonds”.

“Senior manager accountability and new compensation structures will help to rebuild trust in financial institutions,” Mr Carney added.