BOE’s Carney calls time on ‘age of irresponsibility’
THE governor of the Bank of England declared this week that “the age of irresponsibility” in the City of London is over, as he recommended longer jail sentences for criminal bankers.
Mark Carney said banks, regulators and individuals had collectively failed to prevent markets being rigged. However, he insisted that the industry was being cleaned up and that authorities would no longer tolerate the widespread misconduct that has plagued the financial world.
Announcing the end of the yearlong Fair and Effective Markets Review into how to clean up markets in the wake of the Libor and foreign exchange scandals, the bank recommended increasing the maximum jail sentence for market abuse from seven to 10 years.
It also proposed including more financial markets, such as interest rate swaps and certain derivative transactions, in the criminal definition of market manipulation, and said financial institutions such as hedge funds and interdealer brokers should have to abide by the senior managers regime, a controversial set of laws designed to make executives responsible for wrongdoing on their watch.
“The age of irresponsibility is over,” Carney said. “Though markets can be powerful drivers of prosperity, markets can go wrong. Left unattended, they are prone to instability, excess and abuse.
“Markets are not ends in themselves, but powerful means for prosperity and security for all. As such, they need to retain the consent of society, a social licence, to be allowed to operate, innovate and grow. Repeated episodes of misconduct have called that social licence into question. We have all been let down by these developments. And we all share responsibility for fixing them.”
The proposals were welcomed by Chancellor of the Exchequer George Osborne, who said traders who took advantage of markets were criminals and must be punished as such. “Individuals who fraudulently manipulate markets and commit financial crime should be treated like the criminals they are — and they will be.”
Although banks have been heavily punished for allowing markets to be rigged, paying billions of pounds to authorities in the UK and US over Libor, foreign exchange and other market scandals, Carney said regulators had also failed. “Central banks shared in these failings, operating a system of fire insurance whose ambiguity was anything but constructive when global markets were engulfed in flames,” he said.
The governor promised that the senior managers regime would be applied to senior bank officials, including Carney himself, meaning they would be liable for sanctions if they did not live up to standards. However, the most significant recommendations of the review, which was carried out by the bank, the Financial Conduct Authority and the Treasury, applied to rule-breaking individuals at banks and other financial services institutions.
Few individuals, and even fewer executives, have been personally sanctioned for the widespread rigging of markets in recent years, which Carney said had brought disrepute on the City of London’s status as a global financial hub.
As well as proposing longer jail sentences, the bank recommended new regulations on employee references, to make it harder for traders who were fired or failed to live up to standards to move between banks and other institutions.
It also put pressure on the private sector to make its own efforts to improve behaviour. Big banks and other industry leaders will create a “market standards board” to standardise rules on how they operate in financial markets. However, the bank warned that it would monitor how the review is being implemented and report back in a year, raising the prospect of harsher measures if the industry does not get itself in order.
Financial Conduct Authority chairman John Griffith-Jones said: “Putting conduct and accountability at the heart of these vital global markets will safeguard their future integrity, and the UK’s pre-eminent position in them.” — © The Daily Telegraph, London