OUTLOOK: Banking reform will not be complete until individuals are punished

 

The natural reaction to the Financial Conduct Authority’s (FCA) announcement of an investigation into the Co-operative Bank is to say “what took you so long”?

In reality, however, we’re nearer the end than the beginning. The term “investigation” marks an important legal milestone when used by the FCA being the formal precursor to disciplinary action by its enforcement arm.

Much of the work will have been done, and you can be very sure that the watchdog’s enforcement people will be burning the midnight oil to get the loose ends tied up.

That’s because the independent inquiry announced by Chancellor George Osborne, can’t start until the regulator is finished to avoid prejudicing any actions it might take (and any appeals against those actions).

If the Co-op is found to have broken the rules by misleading investors about its financial health prior to the Bank of England’s discovery of a £2bn hole in its accounts, standard practice would be to impose a fine, and perhaps a heavy one.

In this case such a move would, however, be entirely counter-productive. The bank is hardly in the best of health. It may have secured a recapitalisation deal, but this is still a business that is on its knees. It is not only grappling with a financial crisis, but with a reputational one. As such, it needs every penny it can get to be spent on stemming the flow of departing customers.

Not to mentioned attracting new ones to replace those who have gone and finding a way to make itself relevant as a stock market-listed plc (a consequence of  its recapitalisation).

Suspending any fine – as prison sentences sometimes are – combined with a heavy censure might be a creative way of handling this. But that would leave the job half done. 

Fining institutions is of debatable value even when they are healthy. The diffuse shareholders who nominally pay don’t generally kick a fuss as long as executives keep profits flowing and the share price up.

Banks will only behave better when the individuals that run them are called to account for their misdeeds or for the misdeeds that are committed on their watch.

It bears repeating that despite costing this country as much as a £1tn in both direct and indirect aid, only one senior banker has so far been fined for their role in the debacle that was the financial crisis. There have been two City bans, but one of those was voluntarily accepted.

Now the regulatory community likes to point to Co-op as breaking new ground. Here is an institution that went wrong but was sorted out without recourse to taxpayers’ funds.

That is indeed a positive development when it comes to the prudential regulation of banks. But the job of reform is only half done. It will only be complete when some of the individuals responsible for getting the Co-op (and perhaps other banks) into a mess face discipline and are punished for any misdeeds they may have committed.

Which is why the FCA’s next steps are so important. It is to be hoped that its focus is as much on the individuals that caused the debacle as on the Co-operative Bank as  an institution.

It would also be highly regrettable if  Mr Osborne’s desire to get his “independent” inquiry under way, driven by hopes of it uncovering embarrassing things about Labour’s links with the Co-operative, were to impede this.

CWC chief’s share purchase could prove to be a good bet

 Just in case you had missed it, Cable & Wireless Communications (CWC) yesterday reminded the world that its new chief executive, Phil Bentley, is super confident about the business’s prospects.

After breakfast at his Miami pad, his first job on Friday was to put in an order with his broker for 4.3 million shares at a cost of around £2.4m. That’s a lot of confident!

The company duly reported this through a regulatory announcement that day at 3.58pm, a time when the attention of the handful of staff at their desks in the City was firmly fixed on getting home as soon as possible for whatever activities they had planned at the weekend.

That being the case, CWC reported it a second time yesterday. This provided the former British Gas boss with the opportunity to burble on a bit.

So he offered up a quote saying that he plans to drive “top-line growth”, maintain “cost discipline”, increase returns on capital and improve customer service. All at the same time. Now stop laughing at the back you British Gas consumers.

As a result at least one analyst noticed the share purchase and was moved to hail Mr Bentley’s “vote of confidence” in CWC, which is these days focused on Central America and the Caribbean, hence the location of Mr Bentley’s pad (paid for by the company’s relocation package).

But it’s not all that it might seem.  Mr Bentley was required by buy twice his £800,000 basic in shares when he took on the job. So he’s only actually placing an £800,000 bet on himself. What’s more, his pay and perks, while trebling bills for customers of British Gas, have been put at as much as £13m, so it’s not as if he can’t afford it.

He’ll also get a similar amount of shares free in three years if he meets performance targets. But here’s the thing: CWC might just make an attractive, and bite-sized target, for an American bidder.

As such, a cynic might see the twice-announced share purchase as more of a bet than a vote of confidence – one that could pay off rather quickly. But I’m not a cynic. Honest.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Guru Careers: Pricing Analyst

£30 - 35k (DOE): Guru Careers: We are seeking a Pricing Analyst with experienc...

Ashdown Group: Treasury Assistant - Accounts Assistant - London, Old Street

£24000 - £26000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Sales Team Leader - Wakefield, West Yorkshire

£21000 - £24000 per annum: Ashdown Group: The Ashdown Group has been engaged b...

Day In a Page

Revealed: Why Mohammed Emwazi chose the 'safe option' of fighting for Isis, rather than following his friends to al-Shabaab in Somalia

Why Mohammed Emwazi chose Isis

His friends were betrayed and killed by al-Shabaab
'The solution can never be to impassively watch on while desperate people drown'
An open letter to David Cameron: Building fortress Europe has had deadly results

Open letter to David Cameron

Building the walls of fortress Europe has had deadly results
Tory candidates' tweets not as 'spontaneous' as they seem - you don't say!

You don't say!

Tory candidates' election tweets not as 'spontaneous' as they appear
Mubi: Netflix for people who want to stop just watching trash

So what is Mubi?

Netflix for people who want to stop just watching trash all the time
The impossible job: how to follow Kevin Spacey?

The hardest job in theatre?

How to follow Kevin Spacey
Armenian genocide: To continue to deny the truth of this mass human cruelty is close to a criminal lie

Armenian genocide and the 'good Turks'

To continue to deny the truth of this mass human cruelty is close to a criminal lie
Lou Reed: The truth about the singer's upbringing beyond the biographers' and memoirists' myths

'Lou needed care, but what he got was ECT'

The truth about the singer's upbringing beyond
Migrant boat disaster: This human tragedy has been brewing for four years and EU states can't say they were not warned

This human tragedy has been brewing for years

EU states can't say they were not warned
Women's sportswear: From tackling a marathon to a jog in the park, the right kit can help

Women's sportswear

From tackling a marathon to a jog in the park, the right kit can help
Hillary Clinton's outfits will be as important as her policies in her presidential bid

Clinton's clothes

Like it or not, her outfits will be as important as her policies
NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders