Less than a month following the publication of the Final Report of the Parliamentary Commission on Banking Standards (PCBS), the Government published today (8 July) its initial views on the recommendations.
The Government has endorsed the majority of the PCBS' recommendations, which broadly fall under five headings: i) making individual responsibility in banking a reality for senior management; ii) reforming governance within banks to reinforce each bank's responsibility for its own soundness and standards; iii) creating better functioning and more diverse banking markets; iv) reinforcing the responsibilities of regulators in the exercise of judgment; and v) specifying the responsibilities of this and future Governments.
The widest-reaching PCBS recommendations included replacing the Approved Persons Regime with a new framework, strengthening remuneration provisions and heightening expectations on, and sanctions for, the failures of individuals, all of which the Government announced that it plans to implement. The Government also expressed support for the PCBS' competition-related recommendations and has already launched a review of the case for splitting RBS into a 'good bank' and a 'bad bank'.
However, the Government has stopped short of committing immediately to some of the other recommendations, instead opting to initiate "detailed further work to explore the best path for their implementation." This is the case, for example, with the various remuneration recommendations, where the Government will be relying on the Prudential Regulation Authority (PRA), in particular, to further examine "whether there is merit" in proposals such as recovering remuneration received / awarded in the event of subsequent enforcement action.
Finally, the Government stated outright that it will not take forward a small number of PCBS recommendations. As already indicated in the Chancellor's Mansion House speech, the Government will not abolish UK Financial Investments (UKFI) and will not take forward the PCBS' recommendation on the leverage ratio, including giving the FPC the power to determine leverage ratios sooner than 2018 and going beyond internationally agreed minimum leverage requirements.
Next steps
The Government's response is only an initial
indication of how the various PCBS recommendations are going to be
taken forward. The Government is relying on the regulators to
implement a number of recommendations. The Bank of England, the PRA
and the FCA will therefore be issuing their own responses in the
autumn. A number of recommendations will be implemented via
amendments to the Banking Reform Bill in the autumn.
David
Strachan - Partner, Co-Head EMEA Centre for Regulatory
Strategy
David focuses on regulatory issues related to systemic
risk, including the Independent Commission on Banking's work in
the UK and the international tools deployed in relation to crisis
management. David joined Deloitte after 12 years at the FSA, where
in his last role, Director of Financial Stability, he worked on the
division of the FSA into the PRA) and the FCA.
For more information on the EMEA Centre for Regulatory Strategy, please visit: www.deloitte.co.uk/centre
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
