Banking reform plans unveiled
3 Aug 09
Proposals to overhaul UK banking regulation and to improve corporate governance within the sector were unveiled in July
Chancellor of the Exchequer Alistair Darling, in a white paper on banking reform, is proposing to improve rather than replace the “tripartite” system under which responsibilities are shared between the Financial Services Authority, the Bank of England and HM Treasury.
The White Paper endorses the proposals in Lord Turner’s review, published in March, for higher regulatory capital requirements for “systemically significant firms”, to be set by the FSA.
There would also be more formal collaboration and exchange of information between the Bank of England, FSA and central government.
The White Paper includes the proposal, aired by Bank governor Mervyn King, that banks should draw up a “living will” detailing what should happen in the event of a collapse. It also promises curbs on “casino banking”, that is banks betting their own funds in proprietary trading, and calls for banks to finance the depositors’ compensation scheme ahead of calls on the scheme.
Meanwhile, Sir David Walker’s review of governance in financial institutions has recommended a stronger role for non-executives in overseeing risk and remuneration at banks and other financial institutions (BOFIs).
The Walker Review recommends risk committees chaired by non-executive directors, and also more transparency and scrutiny for remuneration and bonuses. It also encourages BOFIs’ institutional shareholders to play a more active role.
Walker said: “Taken alongside the arrangements being proposed by the FSA, the recommendations on remuneration are as tough or tougher than anything to be found elsewhere in the world. An important and urgent challenge is to promote adoption of similar approaches internationally.”
The consultative document proposes that most of the recommendations are enforced through inclusion in the Combined Code on Corporate Governance.