A NEW law is to be introduced which will allow reckless bank bosses to be jailed and bonuses to be clawed back, Prime Minister David Cameron has confirmed.
The government will use the Banking Bill which is currently going through parliament to bring in the measures which were recommended in the Banking Commission’s report introduced today.
The announcement came during Prime Minister’s questions where Mr Cameron also announced a new trade minister, Ian Livingston, currently the chief executive of BT.
The Parliamentary Commission on Banking Standards called on the Government to hold senior bankers personally responsible for malpractice and introduce a new criminal offence for reckless management that carries a custodial sentence.
Its long-awaited final report suggests regulators should be given the power to defer bonuses for 10 years under plans to stamp out excessive pay practices.
The wider reforms proposed include setting up a new professional code of conduct and licensing bankers.
Answering questions in the Commons, Mr Cameron was pressed on whether he supported the recommendations on bonuses and criminal penalties.
“Yes, I do support both of those measures,” he said. “Obviously we need to take time to read this excellent report.
“But penalising, including criminal penalties against bankers who behave irresponsibly, I say yes. Also, making sure that banks who are in receipt of taxpayers’ money that you can claw bac bonuses, I say yes too.”
He said ministers would be using the Banking Bill currently going through parliament to implement the plans.
However, Labour leader Ed Miliband accused Mr Cameron of lining bankers’ pockets by cutting the top rate of tax from 50p to 45p.
He said official statistics showed that bonuses were up nearly two-thirds year on year in April, when the reduction took effect.
“The reality is bonuses are up 64 per cent in the City,” he said. “And why? Because he has cut the top rate of tax from 50p to 45p - so people take their bonuses in April and get a massive tax cut as a result.”
However, the Prime Minister insisted that bonuses were 85% lower in 2012-13 than they were in 2007-8. Labour had been in charge when the banking system got out of control, he said.
“They had 13 years to sort out this problem. They did absolutely nothing,” Mr Cameron added.
Speaking before the exchanges, Andrew Tyrie, chairman of the commission, said scandals such as the fixing of the Libor rate had exposed “shocking and widespread malpractice”.
“Taxpayers and customers have lost out. The economy has suffered. The reputation of the financial sector has been gravely damaged. Trust in banking has fallen to a new low,” he said.
He said regulatory failures were also responsible and called on the Government to “get on with the job” of implementing reforms.
The commission recommended setting up a licensing regime to “empower the regulator to judge those whose behaviour could seriously harm the bank, its reputation or its customers”, against a new set of banking standards rules.
Mr Tyrie added: “Personal accountability is little more than an illusion in many parts of banking, especially at senior levels.
“For too long, senior figures have appeared to be beyond enforcement.”
Some of the proposals met with a lukewarm reaction in the City.
Gary Greenwood, of Shore Capital Stockbrokers, called the recommendations “alarming”.
He said: “We question whether the industry will be able to attract top talent, given the proposed restrictions on pay and risk of being sent to jail for getting the job wrong.
“We think the proposal to put financial safety ahead of shareholder interests suggests an industry that is unlikely to generate above average returns for its owners in the long run.”