London - Bankers found guilty of “reckless misconduct” in Britain could end up in prison and be stripped of bonuses, under draconian proposals on Wednesday to clean up London's scandal-hit financial sector.
The Parliamentary Commission on Banking Standards, established by the government after the Libor rate-rigging scandal last year, made the recommendations in a final report that amounted to a blunt indictment of malpractice.
The scandals have besmirched the old and worldwide reputation of the City of London and made some bankers the target of public anger.
The Treasury welcomed the review, describing it as an “impressive piece of work”, adding that it would help the government “create a stronger and safer banking system”.
The Commission was formed last year after revelations that Barclays bank tried to manipulate the Libor rate, which is used as a benchmark for global financial contracts worth about $300 trillion.
“Under our recommendations, senior bankers who seriously damage their banks or put taxpayers' money at risk can expect to be fined, banned from the industry, or, in the worst cases, go to jail,” Commission chairman and Conservative lawmaker Andrew Tyrie said in a report.
The report added: “A criminal offence will be established applying to senior persons carrying out their professional responsibilities in a reckless manner, which may carry a prison sentence.
The Commission, which included Archbishop of Canterbury Justin Welby, the Church of England's spiritual leader, as well as lawmakers from across British political parties, recommended also that the state-rescued Royal Bank of Scotland (RBS) should be split into a so-called good bank and a bad bank.
It also criticised the government for “political interference” in both RBS and fellow bailed-out lender Lloyds Banking Group.
The review was published ahead of finance minister George Osborne's annual Mansion House speech to business leaders later on Wednesday, when he is expected to address the government's privatisation plans for RBS and Lloyds.
Lawmakers and Welby additionally called for “much more (of bankers') remuneration to be deferred and, in many cases, for much longer periods of up to 10 years” to “reflect the longer run balance between business risks and rewards”.
“Shocking and widespread malpractice”
Tyrie said that “recent scandals, not least the fixing of the Libor rate...have exposed shocking and widespread malpractice” within Britain's banking sector.
“Taxpayers and customers have lost out. The economy has suffered. The reputation of the financial sector has been gravely damaged. Trust in banking has fallen to a new low,” he added.
The reputation of Britain's banking sector has been damaged in recent years by a string of scandals, including also credit insurance mis-selling and ongoing controversy over staff behaviour in the run-up to the 2008 global financial crisis.
Industry body the British Bankers' Association on Wednesday said that it would work alongside the government to implement the report's recommendations.
“This is the most significant report into banking for a generation,” said BBA chief executive Anthony Browne in a statement.
“We look forward to working with government and regulators to take forward the constructive proposals contained in the report.”
Libor, which is calculated daily using estimates from banks of their own interbank rates, has been found to be open to abuse, with some traders lying about borrowing costs to boost trading positions or make their bank seem more secure.
On Tuesday, Britain's Serious Fraud Office charged the first person, former UBS bank trader Tom Hayes, in connection with its Libor probe.
The BBA - which will lose its role of Libor rate-setter in the wake of the rigging crisis - had last week unveiled proposals aimed at preventing manipulation of the system. - Sapa-AFP