MPs warn Government not to allow ‘dilution’ of banking reforms

Six banks were fined, including Royal Bank of Scotland (RBS), for trying to manipulate foreign-currency prices are a stark reminder of the need for sweeping changes (AFP/Getty)

MPs and peers have warned the Government not to allow banks to dilute planned reforms drawn up to prevent a repeat of the financial crisis.

Members of the former Parliamentary Commission on Banking Standards, whose proposals last year shaped the Government’s shake-up, sounded the alarm bell about how the changes are being implemented.

They have told the Chancellor, George Osborne, that last week’s £2.7bn fines for six banks, including Royal Bank of Scotland (RBS), for trying to manipulate foreign-currency prices are a stark reminder of the need for sweeping changes.

They warned that traders who tried to rig the foreign-exchange (forex) and Libor markets could fall outside the reforms and called for payoffs to bosses of banks bailed out by taxpayers in future to be “stopped, not simply restricted” to end “rewards for failure”.

The proposed ban follows the row over Fred Goodwin, who retired early as RBS chief executive in 2008, but saw the value of his pension increased from £8.3m to £16.6m.

The warning shot came in a joint statement signed by commission members including Andrew Tyrie, chairman of the Treasury Select Committee; the Most Rev Justin Welby, the Archbishop of Canterbury and Lord Lawson of Blaby, the former Chancellor.

They said: “None of our reforms has yet been implemented by banks. The numerous and varied problems in banking that we identified remain, therefore, unaddressed. It is essential that the momentum behind our reforms is maintained. There is much still to do.”

The commission members added: “There are already signs that memories of the events that prompted the creation of the commission are growing hazy, and that, as banks recover their strength and self-confidence, their support for reform is also growing weaker.”

Although there are plans to delay bankers’ bonuses for five to seven years, MPs and peers said that might not be long enough.

Mr Tyrie, who chaired the banking standards commission, urged ministers not to bow to a lobbying campaign by banks to water down proposals to ring-fence their riskier investment arms from their high-street operations.

He said: “Ring-fencing may be particularly vulnerable to dilution from bank lobbying, particularly as memories of the crisis fade and given that full implementation is half a decade away.

“Dilution cannot be permitted. The UK cannot afford to go through the next business cycle without, as a minimum, the protection of an effective and electrified ring fence.”

He added: “These reforms are badly needed to tackle serious lapses in banking standards and a collapse of trust in the industry. The forex scandal has exposed how much work there is still to do.

“The fact that, several years after the Libor scandal broke, the forex market may have been similarly exposed to rigging is extremely concerning. The commission made wide-ranging proposals to deter such behaviour but banks and regulators do not yet appear to be fully implementing them...

“Maintaining or resuscitating parts of the failed system, whether at the behest of bank lobbying or for the convenience of regulators, must not be permitted to happen.”