The Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) have today published two joint consultation papers aimed at improving individual responsibility and accountability in the banking sector.
These changes include:
In June 2013, the Parliamentary Commission for Banking Standards (PCBS) published its report “Changing Banking for Good” setting out recommendations for legislative and other action to improve professional standards and culture in the UK banking industry. This was followed by legislation in the Banking Reform Act 2013. The PRA and FCA are now consulting on proposals that incorporate and build on the Banking Reform Act and the recommendations made by the PCBS.
The proposals announced today are significant and will make it easier for firms and regulators to hold individuals to account.
In the joint consultation paper, Strengthening accountability in banks: a new regulatory framework for individuals, the PRA and FCA proposals include introducing:
A new set of Conduct Rules, which take the form of brief statements of high level principle, setting out the standards of behaviour for bank employees.
In the accompanying joint consultation paper ‘Strengthening the Alignment of Risk and Reward: New Remuneration Rules’, the PRA and FCA proposals include:
The PRA has also today published final rules on clawback which introduce a seven-year minimum period for clawback from the date of award. These rules will come into force on 1 January 2015.
Andrew Bailey, Chief Executive of the PRA said:
“Holding individuals to account is a key component of our job as regulators of banks. The combination of clearer individual responsibilities and enhanced risk management incentives will encourage individuals in banks to take greater responsibility for their actions. We believe that enhancing individual accountability and improving the alignment of risk and reward should have a positive impact on behaviour and culture within banks and will help to ensure that they are managed in a way that promotes the safety and soundness of individual institutions.”
Martin Wheatley, Chief Executive of the FCA said:
“How a firm conducts its business and treats its customers must be at the heart of how it operates. This has to start at the top. Today’s consultations mark a fundamental change in the regulators’ ability to hold individuals to account, which is what the public expects of us. It will also build on the cultural change we are beginning to see in the boardrooms of firms across the country.”
The PRA and FCA aim to publish final rules in early 2015.
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