Mark Carney has spoken on the work to improve the culture of the banking industry. He commented that the banking industry has suffered twin crises of solvency and legitimacy. The solvency problems are being addressed by significant regulatory reforms to make banks more liquid, more focused and stronger. Meanwhile, multiple examples of misconduct have led many to mistrust the banking industry. In terms of what has been done, he spoke of:
- the UK’s action plan to create stronger deterrents – including not only strengthening laws and regulation and reducing opportunities for bad behaviour, but also seeking to move from ex post fines for bad behaviour to ex ante incentives for good culture. The UK’s introduction of the regulatory references regime to address “rolling bad apples” may now be adopted internationally;
- the drive by the Banking Standards Board to promote higher standards of conduct and competence across the UK banking system;
- the SMR, necessary to re-establish the link between seniority and accountability. He said there are encouraging signs that the SMR is already making a difference – both for firms and supervisors.
He noted an increase in voluntary adoption of the SMR, including within BoE – and gave the example of Charlotte Hogg’s resignation as an example of the kind of action that would be expected from banks faced with an analogous situation. He noted the Treasury Select Committee’s review and report is what had ultimately caused her resignation. He assured that PRA does not run a disproportionate “one strike, you’re out” regime for an honest mistake. Proportionality, he said, is about taking into account the severity of the incident, the track record of the individual and their firm, and the firm’s wider response.