Phone hacking scandal deepens

[David Guyatt]

Carney switches Bank of England focus to conduct risks

Mark Carney, the Governor of the Bank of England, has warned senior bankers that conduct costs related to past misbehaviour have become the most pressing issue for the industry

Mark Carney, the Governor of the Bank of England, has privately warned bankers that conduct costs are the biggest problem facing the industry Photo: Rex Features







By Harry Wilson, Banking Editor

8:00PM GMT 26 Jan 2014

64 Comments


Mark Carney, the Governor of the Bank of England, has told a group of senior bankers that dealing with the legacy of past wrongdoing is becoming the most pressing issue for the industry.

Mr Carney is understood to have discussed the growing problem of conduct risks with Douglas Flint, chairman of HSBC, Peter Sands, chief executive of Standard Chartered, and Deutsche co-chief executive Anshu Jain, in a private session at the World Economic Forum.

It followed a lunch at the Davos event at which the Governor warned that financial institutions must not see fines for misconduct as "a cost of doing business" and said only "exemplary behaviour" would restore trust in the industry.

"While regulators will fix the mechanics of benchmarks in markets ranging from Libor to FX [foreign exchange], only private individuals and institutions can reform the behaviour that has made such changes necessary," said Mr Carney at the lunch hosted by the CBI.

"Changes to the structure of compensation will better align the incentives of bank staff and their shareholders, but not every risk can be anticipated," he added.

Related Articles

• Banks brace for €1.7bn EU fines over Libor
  04 Dec 2013
  
• Mark Carney: City must shrink if era of 'too big to fail' doesn't end
  24 Oct 2013
  
• Banks face £10bn hidden swaps mis-selling bill
  08 Sep 2013
  
• Banks face fresh £1.5bn mis-selling bill
  21 Aug 2013
  
• Banks' time for remorse is not over - Carney
  25 Feb 2013
  

At a series of private meetings, Mr Carney is understood to have repeated this message to industry executives amid fears over the rising cost of regulatory fines.
Over the past 12 months, major banks have paid out tens of billions of pounds in fines and compensation for their past wrongdoing, such as manipulating benchmark global interest rates, selling toxic mortgage-backed securities and mis-selling overly complicated financial products to business customers.
Senior figures at the Bank of England have become concerned at the increasing cost of these penalties and dealing with conduct problems has replaced raising new capital as the main focus of the authorities.
Research by the London School of Economics found that between them 10 of the world's largest banks, including Barclays, HSBC, Lloyds Banking Group and Royal Bank of Scotland, have paid out about £143bn in "conduct costs" since 2008, equivalent to five years of dividend payments to share-holders.
Analysts at UBS estimate that the banking industry could still be facing further costs of between £30bn and £42bn, with new fines for Libor, as well as investigations under way into the alleged rigging of global foreign exchange markets. These costs exclude potential civil lawsuits connected to banks' misconduct.
Barclays is facing in April what is seen as a test case over its involvement in attempts to manipulate Libor brought by care home operator Guardian Care Homes. The company claims the bank mis-sold it a series of derivatives linked to interest rates. Barclays is defending the case and has said the claim is without merit.
RBS is defending a £4bn claim from investors over a £12bn rights issue in 2008, with shareholders, including several institutional funds, claiming the lender did not provide them with important information on the deterioration in its financial performance.

.