Global regulators get toolkit to combat banking misconduct

Making senior employees directly accountable for their actions is one of the options in a new "toolkit" to combat the misconduct that has damaged public trust in financial services, a global regulatory body said on Friday. The Financial Stability Board (FSB), which coordinates financial regulation for the Group of 20 Economies (G20), said misconduct had cost banks $320 billion in the last decade, with firms rather than individuals usually footing the bill.
Banks have been hit by hefty fines for trying to rig the Libor interest rate benchmark and foreign currency markets, with relatively few individuals punished. "It is for firms and authorities to determine how best to address conduct issues in their jurisdictions," the FSB said in its report for G20 central bankers and finance ministers meeting in Washington on Friday.
It sets out 19 steps that regulators and financial firms can take to tackle the causes and consequences of misconduct. "Rather than creating an international standard or adopting a prescriptive approach, the FSB is offering this toolkit as a set of options based on the shared experience and diversity of perspective of FSB members in dealing with misconduct issues."
The FSB said holding individuals accountable for their actions could help improve standards. "Such an approach could also support cultural change at firms - for instance, by dispelling notions that fines are the cost of doing business," the FSB said.
Britain has introduced a "senior managers regime" which maps out who is responsible for which core functions at a bank or insurer, making it easier for regulators to pinpoint blame when things go wrong. But it has proved controversial, with some people put off from becoming senior officials at banks.
The toolkit also looks at ways to avoid hiring "rolling bad apples" or people involved in misconduct who move jobs to cover their tracks. It recommends improving how candidates are interviewed and making better background checks.
It also looks at how misconduct is "normalised" in some firms due to misplaced group loyalty and managers setting unrealistic goals.