In a policy paper the Treasury backed many of the recommendations made by a British parliamentary commission last month. In its 571 page report The Parliamentary Commission on Banking Standards called for tighter rules on pay, greater competition among British banks and more transparency on what activities executives are responsible for, a move that could make future regulatory punishments easier to hand down.
The Treasury said it intends to make reckless misconduct by senior bankers a criminal offence. To this end the burden of proof will be reversed and it will be up to executives to prove that they took all reasonable steps to ensure they didn't break regulatory rules.
The Treasury also said it was working with the regulators to ensure bonuses can be deferred for up to 10 years or clawed back when a bank is bailed out by the government. The U.K. government will also introduce a new "approved persons" data base for those working in the banking industry.
Other proposals focused on beefing up competition. The U.K.'s new regulator, the Prudential Regulation Authority, will be mandated to increase competition in the British banking sector. A new payments regulator will urgently examine whether customers should be assigned a "portable" bank account number to switch providers freely and whether major U.K. banks should give up ownership of the payments systems.
However, the Treasury stopped short of backing some of the committee's more radical conclusions. To this end the government won't disband U.K. Financial Investments Ltd., a body which was created to manage the government's stakes in its bailed out banks. The commission said that UKFI should be scrapped after failing to stop the government from exerting influence over part state-owned banks.
"The Government continues to value the role of UKFI in managing the Government's shareholdings in state-owned banks," the Treasury said.
The Treasury also held back from pushing banks to hold more capital against their assets. Currently regulators are urging banks to hold at least 3% equity against total assets. The parliamentary commission wanted the ratio raised and set by the Bank of England's Financial Policy Committee before 2018 when European regulatory rules are due to be enacted. This move has been fiercely contested by several lenders, notably Barclays PLC (BCS) and Nationwide Building Society, which are struggling to hit the 3% leverage ratio target.
In its paper the Treasury said that the FPC should be granted that power in 2018, following a review in 2017. However, the minimum 3% level will continue to be applied.
The recommendations will either be included in the Banking Reform Bill that is currently being debated in Parliament or taken forward by U.K. regulators.