Wednesday, 19 June 2013

UK: 'Changing banking for good' - Banking Standards Commission publishes final report

The Parliamentary Commission on Banking Standards, established in July last year, published its fourth and final report today. Titled 'Changing banking for good', the report makes recommendations the purpose of which are to improve standards across the banking industry. The report is divided into two sections: volume one contains the summary, conclusions and recommendations (here or here, pdf); volume two contains chapters one to eleven, annexes and formal minutes (here or here, pdf).

There is much in the wide-ranging report concerning corporate governance, most specifically in chapter seven which is titled 'Bank governance, standards and culture'. The Commission states that there is no quick single fix but is wary of making many recommendations which, in its view, "may do little more than create yet more lucrative work for corporate governance professionals" (para. 676). This said, some recommendations are made against the background of the Commission's view that relying on greater shareholder empowerment is not the answer, given the misalignment between asset manager incentives and the long-term interests of a company, together with the fact that shareholders contribute only a small proportion of a bank’s capital. The Commission's recommendations in chapter seven include the following:
  • The Financial Reporting Council should publish proposals, within six months, designed to address the widespread perception that some ‘natural challengers’ are sifted out by the nomination process. Consideration should be given to whether the Nomination Committee should be chaired by the Chairman of a bank or by the Senior Independent Director. 
  • Regulators should examine the merits of requiring each non-executive vacancy on the board of a bank above the ring-fence threshold to be publicly advertised.
  • The UK Corporate Governance Code should be amended to require directors of banks to attach the utmost importance to the safety and soundness of the firm.
  • The PRA Principles for Businesses should be amended to include a requirement that a bank must operate in accordance with the safety and soundness of the firm and that directors’ responsibilities to shareholders are to be interpreted in the light of this requirement.
  • The Government should consult on a proposal to amend section 172 of the Companies Act 2006 to remove shareholder primacy in respect of banks, requiring directors of banks to ensure the financial safety and soundness of the company ahead of the interests of its members.
  • A full-time Chairman should be the norm; the Chairman should not usually hold any other large commercial non-executive or executive positions.
Elsewhere in the report, recommendations are made with regard to remuneration (see chapter eight) and for reform of the approved persons regime (chapter six). Chapter ten makes recommendations concerning sanctions and enforcement, including the Commission's view - widely reported in today's press - that there is a strong case in principle for a new criminal offence of reckless misconduct in the management of a bank.

Update (20 June 2013) - further volumes (numbered three to nine) have been published and these contain the written and oral evidence submitted to the Commission: see here.

No comments: