UK chancellor of the exchequer George Osborne has backed tougher rules for the banking industry, including legislation to jail reckless bankers and giving regulators the power to defer bonuses for as long as 10 years.
In its response to the recommendations of the Parliamentary Commission on Banking Standards, the British government said yesterday it plans to implement the main findings, with new laws if needed.
“Cultural reform in the banking sector marks the next step in the government’s plan to move the whole sector from rescue to recovery and ensure that UK banks demonstrate the highest standards, and are able to support business and drive economic growth,” Osborne said in a statement.
Pay reform is part of a programme of sweeping change proposed by the commission, a cross-party group of lawmakers set up last year by Osborne after a series of scandals and five years of poor returns for the financial industry. The recommendations being adopted go further than changes introduced by British regulators after the financial crisis, which forced bankers to wait as long as five years to get their bonuses.
Osborne plans to introduce legislation later this year that would make “reckless” management of lenders a crime, meaning executives of failed firms could face jail time.
The government also “strongly supports” calls that a substantial part of variable compensation for the highest earners at banks should be deferred for up to a decade to reflect the time it takes for profits and losses from transactions to be realised.
Other suggestions include powers to claw back bonuses awarded by banks that receive state aid and paying staff in bail-in bonds that convert into capital to absorb losses, leaving managers exposed to losses if their firm goes bust.