The Bank of England (the Bank) has published a speech given by its Governor, Mark Carney. The speech is entitled. Remarks at the Banking Standards Board Panel “Worthy of trust? Law, ethics and culture in banking”
At the beginning of his speech Mr Carney discusses the Bank’s action plan for the UK financial system which begins with stronger deterrents. Mr Carney notes that in the UK, important steps have been taken to strengthen laws and regulations although some gaps still remain, most notably in the FX market. Mr Carney also notes that while fines and sanctions have roles in deterring misconduct, they will not, on their own, bring about the cultural change that is needed. In light of this Mr Carney states that there must be a move from excessive reliance on punitive, ex post fines of firms to greater emphasis on more compelling ex ante incentives for individuals. This includes reducing opportunities for bad behaviour, for example, by overhauling the key benchmarks in FICC markets.
Mr Carney also covers the senior managers’ regime (SMR). Although the SMR is only a year old Mr Carney feels that there are encouraging signs that it is making a difference. For firms, the SMR is clarifying and improving governance, accountability and decision-making processes. Senior managers are increasingly focusing on building cultures of risk awareness, openness and ethical behaviour. For supervisors, the SMR is helping identify weaknesses in governance and accountability, and encouraging the necessary changes. Adoption of the SMR is also spreading with some international firms voluntarily adopting elements of the certification requirements to strengthen their global operations.