The UK Government has confirmed it will move quickly to implement the reforms of bank pay and governance proposed today by Sir David Walker.
Sir David’s review was commissioned by the Government earlier this year to explore failures of corporate governance and management of banks. His final report suggests a series of reforms to strengthen the role of shareholders, improve the quality of bank boards, and to increase transparency of pay and bonus policies.
Chancellor of the Exchequer Alistair Darling said: 'One of the fundamental causes of the financial crisis was bad management of some our major banks. Too many people around board tables did not ask the right questions; some chief executives did not fully understand the risks being taken by their traders; pay and bonuses encouraged reckless risk taking instead of responsible behaviour. Banks failed because some of the top people running banks failed to do their jobs.
'Tougher regulation, including stronger capital and liquidity requirements, reform of the mortgage market, greater competition, consumer protection, and living wills will help to make our system safer for the future. But the culture of the banks themselves must change.
'Sir David’s proposals are the blueprint for how banks must be run in the future. His interim report recommended changes to control bonuses that have already become part of a global standard agreed by the G20. The Government strongly supports his recommendations and will take steps to implement them as soon as possible'.
The report recommends action to be taken by the Government, the Financial Services Authority, the Financial Reporting Council, bank owners, and the banks themselves. For its part, the Government accepts all the recommendations and will begin immediate work to implement them.
Specifically, the Government’s Financial Services Bill will allow the Treasury to issue regulations forcing banks to disclose in bands the number of staff earning more than £1million per annum. The report also recommends the payment of bonuses for certain staff in equity, deferred for up to 5 years, and a bonus clawback provision.
Bloomberg reports the British Bankers Association's comments that 'too many countries show no sign of following suit' on bonuses, and quotes Rachel Kent, a regulatory lawyer at Lovells, who said: 'If New York, Frankfurt and Paris don't follow suit, then presumably that is not such a fantastic thing for the UK'.