This article is from the source 'guardian' and was first published or seen
on .
It last changed over 40 days ago and won't be checked again for changes.
More City reforms needed, Bank of England governor tells forum
More City reforms needed, Bank of England governor tells forum
(about 5 hours later)
The Bank of England governor declared the age of “heads I win; tails you lose capitalism” was coming to an end, eight years after the financial crisis that led to £65bn taxpayer bailouts of major banks and raised questions about the purpose of the City.
George Osborne has said City fraudsters should receive the same treatment as shoplifters as he joined forces with the governor of the Bank of England, Mark Carney, to promise the public that the scandal-hit financial sector was being cleansed of wrongdoing.
Mark Carney told an audience of bankers, academics and members of the public that despite a series of changes to the way the City operated there was still more to be done. Some rules may need to be rethought, he said.
The chancellor said he understood the anger felt by voters towards bankers guilty of multimillion pound rip-offs and said they should be treated like other criminals if they broke the law.
“The era of heads I win; tails- you lose capitalism is drawing to a close. Complex webs of derivatives are being simplified and made safer. We are also working to turn the tide of ethical drift,” Carney said.
In a combined show of intent by the UK’s top economic policy makers at an event designed to tackle public disquiet over the state of one of the economy’s most important sectors, Carney said there was still work to do to root out the City’s “bad apples”.
He was speaking at the start of an initiative by the Bank to justify the purpose of financial markets after the banking crisis and market-rigging scandals in the interest rate and current markets. These events had shown the markets were “fragile, unfair, ineffective and unaccountable”.
The governor and the chancellor were speaking at an initiative by the Bank to justify the purpose of financial markets after the banking crisis and market-rigging scandals in the interest rate and current markets. These events had shown the markets were “fragile, unfair, ineffective and unaccountable”, Carney said.
He added: “Market benchmarks have been reformed to end abuse. Most importantly, market participants are being made accountable for their actions. Misconduct will be met with genuine penalties. By holding individuals accountable, authorities are ending the age of irresponsibility.”
Osborne used his appearance at the Open Forum – a gathering of bankers, policy makers, academics and members of the public – to justify tougher action against those who manipulated financial markets.
Carney spoke of the need for the so-called Open Forum at the Mansion House speech in July and called for 10-year prison sentences to clamp down on bad behaviour.
The chancellor said fines on the industry were working, saying “if anyone thought that being unethical in the financial services industry is a good way to make money I suggest they look at the very big fines” levied on the industry. US, UK and European banks have been fined more than $150bn by international authorities since 2009.
He told the audience, which included George Osborne: “Today is a chance to take stock and reflect: not just on our achievements but on what we might have missed, overdone, or simply got wrong. Given the complexity and scale of financial reform, it would be remarkable if every measure were perfectly constructed. Or if they all fit seamlessly into a totally coherent, self-reinforcing whole. Authorities must have the courage to listen, the honesty to admit our mistakes and the confidence to set them right.”
Osborne said he totally understood the public’s anger at the bankers, who had been responsible for the “biggest single economic crash of our lifetimes”.
Osborne said bankers making big money on trading floors needed to think again if their behaviour was unethical. “If anyone thought that being unethical in the financial services industry is a good way to make money I suggest they look at the very big fines” levied on the industry,” he said.
He added that there were punishments for shoplifters but “if you rip off people to the tune of millions of pounds, there are no criminal offences”.
The chancellor said he understood the public’s anger over the banking crisis. There are punishments for shoplifters, he said, but “if you rip off people to the tune of millions of pounds, there are no criminal offences”. He had changed the rules, he said.
“If you go and shoplift at the local WH Smiths you go to prison, but if you’re the market trader on the trading floor of a big investment bank and you rip off people to the tune of millions of pounds, there are no criminal offences available to deal with you,” said Osborne. He had now changed the rules, he said.
Carney also spoke of wanting to avoid the booms and busts of the past. “We’re determined not to repeat the cycles of the past when bursts of post-crisis reforms would eventually drift into complacency and cohabitation,” he said. “When the caravan moved on, markets were left unattended to slip slowly into excess and ethical drift.
Carney said that under new rules to be introduced in the New Year, senior managers would have to ensure that junior traders and fund managers knew what a “true market” was. Despite a series of changes to the way the City operated there was still more to be done. Some rules may need to be rethought, he said.
“The twin crises of the solvency and legitimacy of finance undermined trust in market mechanisms and the effectiveness of the financial system. It is hardly surprising that only a third of people believe markets work in the interests of society. The more people see, the less they like. People trust markets less with age. We all have a responsibility to stop this from happening again.”
“The era of ‘heads I win; tails you lose’ capitalism is drawing to a close. Complex webs of derivatives are being simplified and made safer. We are also working to turn the tide of ethical drift,” Carney said.
Just a handful of the 400 or so audience members – including 200 members of the public who won their place in a ballot – raised their hands when asked it if was case of “job done” in terms of regulatory reform.
In an interview with Sky News, Carney said: “There is still work to root out those bad apples but I think we’ve got to recognise that there is a lot of good in financial services. It makes a huge difference to our economy.”
Tracey McDermott, acting chief executive of the Financial Conduct Authority, was asked if the regulator was going soft on the City after imposing a wave of fines and compensation payouts. “What we do want the world to look like going forward,” she said. “We can’t have a sustainable regulatory framework, can’t have customer trust … unless we are actually starting to look … at what we want the future to look like,” she said.
Carney spoke of the need for the Open Forum at the Mansion House speech in July and called for 10-year prison sentences to clamp down on bad behaviour. Only a third of people believe markets work in the interest of society, the governor said.
She added later: “I am not going soft on the banks ... If we take the stick away the carrot won’t be useful.”
The event took place at a time when the industry is questioning some of the rules put in place since the 2008 crisis to make bankers more accountable and banks less likely to need taxpayer bailouts and markets more difficult to rig.
Sir Howard Davies, the chairman of Royal Bank of Scotland, said he had not noticed that the regulator was going soft, but that there had been a change of tone. He said the bailedout bank had done more soul searching that most about the “social licence” of bankers. “You know when you don’t have [one],” he said.
Referring to these changes, Carney said: “Misconduct will be met with genuine penalties. By holding individuals accountable, authorities are ending the age of irresponsibility.”
RBS, 74% owned by the taxpayer, is operating on the basis of sustainable banking. The bank was asking if it would survive another crisis and if its customers would keep coming back.
But the governor acknowledged changes to the rules might be needed: “Given the complexity and scale of financial reform, it would be remarkable if every measure were perfectly constructed. Or if they all fit seamlessly into a totally coherent, self-reinforcing whole”.
Osborne said the government had introduced changes to financial regulation – giving the Bank of England responsibility for regulating banks and making bankers more accountable. The changes would mean that the next chancellor who had to deal with a crisis would not have to resort to a taxpayer bailout.
Osborne pointed to fintech – growth in the financial innovation sector – to boost growth in the City. He said he had appointed accountants Ernst & Young to conduct a review to benchmark the UK against the rest of the world. He added that Andrew Bailey, the Bank of England’s deputy governor, was also writing to the Treasury to make it easier for new banks to set up.
Just a handful of the 400 or so audience members raised their hands when asked it if was case of “job done” in terms of regulatory reform.
Tracey McDermott, acting chief executive of the Financial Conduct Authority, was asked if the regulator was going soft on the City after imposing a wave of fines and compensation payouts. “We can’t have a sustainable regulatory framework, can’t have customer trust … unless we are actually starting to look … at what we want the future to look like,” she said.
She added later: “I am not going soft on the banks … If we take the stick away the carrot won’t be useful.”
