Contents
Terms of Reference
Link to Volume I of Report (Summary, and Conclusions and
recommendations)
1 Introduction
2 The public experience of banks
The bail-outs
Failing to serve customers
Introduction
Sales culture, cross-selling and mis-selling
Scandal after scandal
'Masters of the universe'
Conclusion
3 The underlying causes
This time is different
Incentives to become unmanageable
Too big to fail
Too big and too complex to manage
Loose federations of money-making franchises
Blinded by science
An accountability firewall
Paid too much for doing the wrong things
Falling bonuses, rising salaries
Payment by the wrong yard sticks
Incentives to mis-sell
Inadequate checks and balances
An absence of collective responsibility
Out of control
Regulation: barking up the wrong tree
Overview
A tendency towards rules and complexity
The role of supervisors
The quality of regulators
A lack of market discipline
Competition and standards
Concentration and choice
Barriers to entry
A mismatch of information
Incentives to pull in the wrong direction
The role of shareholders
Conflicts and complacency in external assessment
The wrong tax incentives
Levers of power
Insufficient downsides
Overview
Doing the decent thing
Regulatory penalties on individuals
Fines for firms
Conclusions
4 Tackling resistance to reform
It's all under control
The aims of current reforms
Financial stability: a work in progress
Risks to the competitiveness of the UK banking
sector
Overview
International competitiveness
European obstacles
Shadow banking
Biting the hand that feeds us
Capital and lending
Attractiveness of banks for investment
Overcoming resistance
5 Better functioning markets
A vital utility role
Serving vulnerable members of society
Underpinning utility provision
Community finance and poorly-served communities
Competition in retail banking
Introduction
Competition and standards
Direct measures to reduce concentration
Barriers to entry
Alternative modes of provision
Peer-to-peerand the rise of the internet
Bringing alternative providers into the regulatory
orbit
Enabling customer choice
Introduction
Common utility platform
Account portability
Seven-day switching service
Switching fee
Assessing the options
A market investigation reference
Tackling the information mismatch
Introduction
Duty of care
Empowering consumers through service standards
Tackling the legacy of RBS
Background
Rebuilding the balance sheet
The effects of public ownership
RBS's current strategy
Obstacles to early disposal
Other strategies
A 'good bank / bad bank' split
Challenges in creating a bad bank
Full break-up
Conclusions
Lloyds Banking Group
Financial literacy
Complaints and redress
Small business access to the Financial Ombudsman
Service
The industry's approach to PPI complaints
management
Handling fees for complaints
Transparency in wholesale and investment
banking
6 A new framework for individuals
The contribution of governance
Taking individual responsibility
The Approved Persons Regime
Overview
The statutory framework for approval
The controlled functions
The approval process
The Statements of Principle for Approved
Persons
Relationship to the Remuneration Code
What's wrong with the Approved Persons Regime
A narrow scope
Absence of individual responsibility
A one-shot approach
Bureaucratic complexity and inertia
Conclusions: the failure of the Approved
Persons Regime
The role of professional bodies
Is banking a profession?
Qualifications and training
Standard setting and codes of conduct
Discipline and control
Lessons from other sectors
Making a choice
Milestones for a professional body
Our approach
Codes of conduct and enforcement
Participation by banks
Scope
Training and continuing professional development
Funding and independence
The Senior Persons Regime
Three new pillars
A new regime
Defining scope and responsibilities
Entry, review and conditions
The Licensing Regime
Broadening the regime
Making banks responsible
Reforming the register
The benefits of an international approach
Banking as a special case
7 Bank governance, standards and culture
Shareholders: the silent owners
The UK equity market
Who owns the banks and why?
Shareholder pressure and leverage
Conclusions
The role of bondholders
Bank boards and governance
Introduction
The nature of the failures
Why banks are different
Fiduciary duty
Conclusions on boards
Individual responsibility
Internal controls and disciplines
The problem
Front-line controls
Risk management
Compliance
Internal audit
Conclusion on internal controls
Standards and culture
Introduction
Prospects for rapid change
Bank codes of conduct
Tone at the top, middle and bottom
Individual incentives for improvements to
standards and culture
Indicators of changed culture
Driving out fear
Introduction
Reasons the banks were not told by their
own employees
Encouraging escalation and whistleblowing
Banks' own whistleblowing policies
The role of the regulator
8 Remuneration
Rewards out of kilter
Introduction
The one-way bet
Harvesting the fruits of market distortion
Banks will not solve this themselves
The current policy framework
Fixed and variable remuneration
Yardsticks for variable remuneration
Company financial performance
Incentives for retail sales
Conclusions
Reforming variable remuneration
Deferral
Recouping variable remuneration
The instruments of variable remuneration
Conclusions and recommendations
Board remuneration
The international dimension
Getting it done
A new Remuneration Code
Transparency and reporting requirements
The role of banks and their owners
9 Regulatory and supervisory approach
New regulatory architecture
Regulatory failure
Introduction
Shortcomings of prudential regulation and
supervision
Dangerous global distractions
Conduct failings: missing the bigger picture
Mired in process
The wrong level of engagement with banks
Quality of supervisory staff
Conclusions
Real-time supervision
Introduction
PRA's supervisory approach
FCA's supervisory approach
Supervisory relationship with banks
Special measures
Supervisory resources
Staff
Raising historical awareness
Cost of regulation
A role for senior bankers?
Regulatory Framework
Basel III and Europe
Capital
Leverage
Aligning tax rules with regulatory objectives
Inappropriate tax incentives
Options to achieve tax neutrality
Accounting for regulatory needs
Introduction
Accounting issues particular to banks
A separate accounting regime
Clearer auditors' reports
It's good to talk
The new regulatory structure and our approach
Regulatory objectives
A PRA competition objective?
The FCA: too many objectives?
Embedding a pro-competition culture at the
FCA
Regulatory accountability
Introduction
A better run Bank of England
Financial Conduct Authority
Retrospective regulatory reviews
Conclusions on regulatory accountability
The new responsibilities
Physician, heal thyself
Warnings from history
10 Sanctions and enforcement
Senior Persons Regime
Licensing
Reforms to remuneration
Enforcement against banks
The current approach
The level of fines for banks
Conclusions
Enforcement against individuals
The need
The sanctions currently available
Evidential standards and individual culpability
The approach to enforcement
Enforcement of civil sanctions: proposals
for reform
Rebuttable presumption
Interim prohibition
Changing the limitation period
Civil sanctions and powers of enforcement
over individuals
Why action is needed
Paving the way for a new approach
Taking responsibility
A new criminal offence?
A new offence: the need
The Treasury consultation
The standard for a new offence
Practical considerations
A punishment that fits the crime
Conclusions and recommendations
Enforcement decision-making
The challenge
FCA enforcement and the Regulatory Decisions
Committee
PRA enforcement
Cooperation between the regulators
Conclusions and recommendations
11 The way forward
Annex 1: Conduct of our work
Annex 2: Trust in other sectors
Annex 3: Bank remuneration
Annex 4: CDFIs
Annex 5: Bank ownership
Annex 6: The public policy framework for
remuneration
Formal Minutes
List of witnesses and published written evidence
taken by the Commission
List of witnesses and published written evidence
taken by the Panels
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