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Dear Mr Mortimer,
Thank you for your correspondence dated 14 January to the Treasury in which you asked whether the law allows bank regulators to be held to account and when the bankers who caused the crash will be held to account.
Firstly, it may be helpful if I explain the current framework of financial regulation. Financial services are regulated by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA), which are statutory independent non-governmental bodies. They are self-financing organisations funded via levies on financial services firms. Although the Treasury sets the legal framework for the regulation of financial services, it has no general power of direction over the regulators and therefore cannot intervene in individual cases.
The Government believes that it is vital that the FCA and PRA are accountable to the Treasury, to Parliament and to the public, including for the economy, efficiency and effectiveness with which they use resources. There are a number of features in statute which support this accountability, for example:
The regulators are both subject
to full audit by the National Audit Office (NAO) and the NAO having
the associated ability to launch VFM studies on the FCA;
Also, the government recognises the concern that many people have that bankers should be held to account for misconduct. The previous government took a number of steps to reform financial regulation in this country, and strengthen our ability to taken action for misconduct in financial services. This involved reforming the regulatory system to establish two properly focussed regulators – the PRA and FCA. This new approach to financial regulation enables the PRA to concentrate on ensuring banks are prudently and competently managed, reducing the risk of serious financial failure. It also ensures that the FCA can concentrate on ensuring that all financial services businesses conduct themselves properly in their dealing both with ordinary retail customers and in wholesale financial markets. As part of these reforms, made in the Financial Services Act 2012, the government also introduced a new criminal offence to ensure that criminal penalties, including imprisonment, can be imposed on people who manipulate key financial benchmarks, such as LIBOR.
The previous government also supported the work of the Parliamentary Commission on Banking Standards, which was appointed by Parliament in July 2012 to consider and report on the professional standards and culture of the UK banking sector, and incorporated measures to give effect to its recommendations in the Financial Services (Banking Reform) Act 2013. These include new arrangements for regulating individual conduct and accountability in banking (the “Senior Managers and Certification Regime”) and a new criminal offence which will mean that criminal penalties, including imprisonment or an unlimited fine, can be imposed on bank senior managers whose reckless misconduct in managing a bank results in that bank’s failure. These measures will come into operation in March 2016.
Thank you for taking the trouble to make us aware of your concerns.