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Bank regulators take aim at culture and pay

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The Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) have proposed new rules that would seek to change how bankers behave and are paid.

In two joint consultation papers the regulators have recommended approval regimes for senior management and changes to the way bonuses are paid. 

The proposed ‘Senior Managers Regime’ would require banks to vet their senior managers regularly for “fitness and propriety”, while a related Certification Regime would require the same assessment process for all staff in a position where the decisions they make could “pose harm to the bank or any of its customers”.

A new set of Conduct Rules, taking the form of brief statements setting out standards of behaviour for banking employees, was also proposed.

Martin Wheatley, chief executive of the FCA, explained: “How a firm conducts its business and treats its customers must be at the heart of how it operates. This has to start at the top.”

The FCA and PRA also proposed changes to how bankers are paid, attempting to align long-term risk and reward by requiring bonsues to be deferred. The regulators also seek to enhance the ability of firms to recover bonuses from senior management if risk management or conduct failings come to light at a later date.

Andrew Bailey, chief executive at the PRA, said: “Holding individuals to account is a key component of our job as regulators of banks. We believe that enhancing individual accountability and improving the alignment of risk and reward should have a positive impact on behaviour and culture within banks and will help to ensure that they are managed in a way that promotes the safety and soundness of individual institutions.”

Wheatley added: “Today’s consultations mark a fundamental change in the regulator’s ability to hold individuals to account, which is what the public expects of us. It will also build on the cultural change we are beginning to see in board rooms across the country.”

The PRA and FCA aim to publish final rules in early 2015.

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