Carney gets tough on rogue bankers
Bank of England governor Mark Carney said the "age of irresponsibility" was over tonight as he set out new plans for rogue bankers and traders who break the rules to be jailed for up to ten years.
Mr Carney made the remarks as the Bank published the final report of the Fair and Effective Markets Review (FEMR), which the governor and Chancellor George Osborne launched a year ago in the wake of a series of City scandals.
The review calls for UK criminal sanctions for market abuse to be extended to a wider range of areas and the lengthening of the maximum sentence available from seven to ten years.
Mr Carney said if unchecked, markets were "prone to instability, excess and abuse".
He blamed poor infrastructure for allowing the US subprime mortgage crisis to "light a powder keg under UK markets, triggering the worst recession in our lifetimes".
The governor was due to make the remarks this evening at his annual Mansion House speech to the City alongside the Chancellor.
Mr Osborne was due to say: "The public rightly asks why it is that after so many scandals, and such cost to the country, so few individuals have faced punishment in the courts.
"The governor and I agree: individuals who fraudulently manipulate markets and commit financial crime should be treated like the criminals they are - and they will be.
"For let us be clear: there is no trade-off between high standards of conduct and competitiveness. Far from it. Implementing the reforms set out in this review will ensure trust in our markets and strengthen London's global leadership position."
Mr Carney was speaking as the FEMR produced a series of recommendations to reform a system whose deficiencies allowed misconduct to take place.
He said: "For the best in the business, this won't be new. This is just how you run your business. But for others, who free ride on your reputations: the age of irresponsibility is over."
The governor said failings in market structures, standards, systems and incentives skewed to short-term returns, coupled with a "culture of impunity" in parts of the market had contributed to an "ethical drift".
Mr Carney also acknowledged the failings of central banks.
"Unethical behaviour went unchecked, proliferated and eventually became the norm," he said.
"Too many participants felt neither responsible for the system nor recognised the full impact of their actions. For too many, the City stopped at its gates, though its influence extended far beyond."
It comes in the wake of a series of banking scandals such as the manipulation of benchmark lending rate Libor and foreign exchange markets.
Mr Carney said fines of 150 billion US dollars (£97 billion) levied on global banks had translated to more than 3 trillion US dollars (£1.9 trillion) of reduced lending capacity to the real economy.
The review sets out 21 recommendations to try to restore trust in the Fixed Income, Currency and Commodity (FICC) markets.
These markets are key to the operation of the global economy, underpinning prices for anything from basic household goods to the rate at which firms can borrow.
The FEMR calls for individuals to be held to account for their conduct, firms taking greater responsibility for market practices.
It also demands tighter regulation and for a regime holding senior management to account to be broadened, and for coordinated international action to be taken where possible "to improve fairness and effectiveness".
In addition it recommends that UK authorities create new civil and criminal market abuse rules for foreign exchange dealing.
The review said it was now time for individuals and firms to take a central role in raising standards, warning that if they failed to, more restrictive regulation would be inevitable.
Mr Carney said markets were a key part of the UK economy, with 350,000 employed in financial services in London and 1 million across the country, contributing £130 billion to the national income and £70 billion to exports.
But he added: "Though markets can be powerful drivers of prosperity, markets can go wrong. Left unattended, they are prone to instability, excess and abuse.
"Markets without the right standards are like cities without building codes, fire brigades or insurance."
He said central banks had shared in failings in recent years "operating a system of fire insurance whose ambiguity was anything but constructive when global markets were engulfed in flames".
The Bank of England, like FICC markets, "relied heavily on informal codes and understandings", Mr Carney acknowledged.
"That informality was well suited to an earlier age. But as markets innovated and grew, it proved wanting," he said.
"Real markets are professional and open, not informal and clubby. Participants in real markets compete on merit rather than collude online."
Martin Wheatley, chief executive of the Financial Conduct Authority, said: "These markets are central to our economy and today's recommendations will be important in rebuilding public trust in their integrity."
Anthony Browne, chief executive of the British Bankers' Association, said: "It's vital that London once again sets the gold standard for fair dealing and integrity in financial markets.
"We welcome the intention to extend regulation from banks to other types of trading organisations. This should give customers greater clarity and protection."
Andrew Tyrie, chairman of the Commons Treasury select committee, said: "Business will locate and flourish in trustworthy markets.
"So the discovery that the FX market had been rigged made FEMR essential, not just to clamp down on misconduct but to safeguard UK markets' competitiveness."
CBI deputy director-general Katja Hall said: "We welcome the emphasis on boosting professional standards and the extension of conduct rules, so that regulators can hold individuals to account for their actions.
"But when putting these reforms in place, we must ensure the UK's reputation as the location of choice for wholesale financial market activity and ability to attract the best talent is maintained."