MPS: CITY STILL DOESN’T GET IT
THE CITY launched a counter-offensive against MPs yesterday, after the Treasury select committee criticised Lord Adair Turner’s review of regulatory reform and cast doubt on Sir David Walker’s suitability to lead a review of corporate governance in the banking sector.
The influential group of MPs concluded in its report on the role of remuneration in the economic downturn, that the banking crisis had “exposed serious flaws and shortcomings in remuneration practices in the banking sector and, in particular, within investment banking”.
The committee, said that the Turner review – FSA chairman Lord Adair Turner’s paper on regulatory reform – had downplayed the role that remuneration played in causing the crisis and called on the FSA to do more to address the issue.
Angela Knight, the chief executive of the British Bankers’ Association immediately leapt to Turner’s defence, saying that his review “has been considered internationally as one of the best”.
And sources within the FSA pointed out that the organisation was preparing to write into its rulebook a proposal from its consultation paper on remuneration requiring firms to operate pay policies “consistent with and promote effective risk management”. The committee also questioned whether Sir David Walker was the right man to conduct a review of corporate governance in the banking sector, given the former Morgan Stanley chairman’s proximity to the City.
In a document laden with criticisms, the committee, led by Labour’s John McFall, attacked shareholders for failing to engage properly with the companies they invested in and also laid blame at the door of auditors who it said had “failed to highlight developing problems”.
The system of non-executive directorships should also be overhauled, the committee said, to ensure that non-executives had enough time and expertise to fulfil their role, as well as ensuring diversity of experience among supervisory board members.
The committee said there was a strong case for scrapping all bonuses at the recapitalised Royal Bank of Scotland and Lloyds Banking Group, but conceded that such a move would damage the banks’ recovery.
But it lambasted City minister Lord Myners for putting too much faith in an “incompetent” RBS board, which allowed chief executive Sir Fred Goodwin to leave with a £703,000 a year pension.