George Osborne is expected to respond to the Parliamentary Commission on Banking Standards’s final report in his Mansion House speech this evening. The report is hefty and packed with recommendations, but there are two areas where the Chancellor will find himself treading a particularly tricky path. Both the proposal to defer bonuses and introduce a criminal offence of reckless misconduct in the management of a bank are designed to encourage responsibility and a greater regard of the consequences of bad behaviour. But Osborne will know that they also pose a threat to the success of the city.
He will need to consider what effect deferring some remuneration for up to 10 years will have on London’s competitiveness as a financial centre. Such a long period of time could arguably lead to talent moving to other cities where the rules mean they get their money earlier.
As for the introduction of a new criminal offence, while it is right that bankers be aware of the damage their misconduct has on wider society, the term ‘reckless misconduct’ is quite broad and could, if not reasonably defined in a way that the profession – rather than simply lawyers – understands, lead to a similar bleeding of talent. Other professions rightly have the threat of criminal proceedings hanging over them for reckless behaviour: doctors can be jailed for manslaughter for a series of mistakes that lead to the wrong sort of chemotherapy being injected into a patient’s spine, for instance. But in those professions, the actions leading to that offence are clear. If Osborne is to accept this recommendation, he will want to make clear that there will be a very narrow range of cases where this would apply.
There will be other mines in the report that he will want to step around. The biggest challenge is defending the city from burdensome regulation that will damage its prominence as a financial centre while acknowledging and empathising with public anger about the masters of the universe.
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