Financial Services: Pay

HM Treasury written question – answered on 27th January 2015.

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Photo of Lord Mendelsohn Lord Mendelsohn Labour

To ask Her Majesty’s Government whether the Bank of England’s fair and effective markets review will consider the level of bonuses paid to individuals working in the fixed income, commodities and currency markets; and how institutions fined for practices in those areas have dealt with the payments made to such individuals.

Photo of Lord Mendelsohn Lord Mendelsohn Labour

To ask Her Majesty’s Government what is their evaluation of progress in changing the culture in the banking sector in the United Kingdom.

Photo of Lord Mendelsohn Lord Mendelsohn Labour

To ask Her Majesty’s Government whether the Department for Business, Innovation and Skills has considered investigating the conduct or operation of the boards of any of the companies that have been fined for practices relating to LIBOR, gold price fixing or foreign exchange manipulation.

Photo of Lord Deighton Lord Deighton The Commercial Secretary to the Treasury

The Government has taken a substantial number of measures to change the culture in UK banking.

This Government supported the work of the Parliamentary Commission on Banking Standards which reported in June 2013 on professional standards and culture of the UK banking sector. Legislation to give effect to its recommendations on banking standards and individual accountability were included in the Financial Services (Banking Reform) Act 2013. The Financial Conduct Authority, the Prudential Regulation Authority and the Treasury worked through 2014 to prepare secondary legislation, regulatory rules and other detailed implementing measures.

The Government expects to announce the final timetable for implementing these reforms shortly.

In the Financial Services Act 2012, this Government introduced a new criminal offence to address the issue of the manipulation of the LIBOR interest rate benchmark. In December 2014 the government announced that this offence would be extended to cover a further seven financial benchmarks from, subject to Parliamentary approval, 1 April 2015.

We also recognise that there is more to do if the banking industry and global financial markets are to regain public trust. The Chancellor of the Exchequer therefore announced in his Mansion House speech in June 2014 a Treasury, Bank of England and FCA review of the operation of the foreign exchange, fixed income and commodity markets. The Fair and Effective Markets Review will examine how trust and credibility in these markets can be restored. The review will report in June 2015.

In November 2014 the Financial Conduct Authority (FCA), in co-ordination with financial regulators in the US and Switzerland, announced the outcome of its investigations into attempted manipulation of foreign exchange markets by 5 banks. It imposed penalties on 5 banks totalling £1.11 billion. In addition the Director of the Serious Fraud Office opened a criminal investigation into allegations of fraudulent conduct in the foreign exchange market in July 2014. The Government does not comment on ongoing investigations, so as not to prejudice these inquiries.

Ensuring that firms incentivise employees to behave in the right way is essential to restoring public trust in financial services. The Fair & Effective Markets Review’s scope covers trading practices in markets, and drivers of behaviour including incentives for individuals. In November 2014 the Chancellor wrote to the Governor of the Bank of England to ask that the increasing levels of fixed remuneration in the financial sector following the introduction of the ‘bonus cap’ be considered as part of this work.

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