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Banks 'deserve what they get', says regulator

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Greg Medcraft

Banks “deserve what they get,” one of the world’s top regulators has said, in a salvo against the industry as it begins to push back against tough regulation and ever higher penalties.

Greg Medcraft, the straight-talking head of Australia’s financial watchdog who also chairs the grouping of the world’s securities regulators, said fines that “hurt” banks — combined with personal accountability laws that jail wrongdoers — were two ways to tackle a culture that had “betrayed the trust of the world.”

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“Banks need to get over it,” he said in an interview with the Financial Times as the annual Iosco conference came to a close in London. “Trust is a very hard slope to go up and very easy to slip down; trust has to be built. There’s no good complaining about it.”

His firm stance comes as banks are stepping up their criticism of tougher regulations introduced in the wake of the financial crisis, aimed at bolstering their balance sheets and making banks easier to wind down. A wave of misconduct fines have also hit banks’ bottom lines. The UK government earlier this month signalled an end to “banker bashing” through a “settlement” with financial services.

Sergio Ermotti, the chief executive of UBS — which has been embroiled in the Libor and foreign-exchange rigging scandals, paying $ 203m last month for violating its earlier Libor agreement with prosecutors — told the same Iosco conference that it was “totally unfair” to claim banks have not learned the lessons of the last few years.

Regulators and policy makers traditionally focused on so-called prudential issues, or the safety and soundness of financial firms, are taking an increasing interest in conduct problems. Some are also concerned that heavy fines from multiple regulators around the world are beginning to have a “systemic” effect.

The UK introduced a suite of measures earlier this month — including extending a tough accountability regime to a whole new swath of the industry encompassing asset managers and dealers — to improve culture in the wake of the Libor and forex scandals, recognising that even nine-figure fines by themselves do not work.

Trust is a very hard slope to go up and very easy to slip down; trust has to be built. There’s no good complaining about it

– Greg Medcraft, Australia’s financial regulator

Mr Medcraft told an Australian senate committee earlier this month that a similar regime holding senior managers to account for failures on their watch should be introduced. Mary Jo White, who heads the US Securities and Exchange Commission, also told the conference that she was “intrigued” by the UK’s measures.

“High fines on their own just don’t result in changes in behaviour; they result in shareholders getting less dividends,” Mr Medcraft told the FT. “You have got to get to the people facilitating the poor behaviour and management should be held accountable if they’re not creating the right environment.”

Iosco should also “give a big bear hug” to the Financial Stability Board, the Basel-based grouping of policy makers and central bankers that makes recommendations to the G20 nations, according to Mr Medcraft, who said that the two groups were traditionally wary of each other.

“We want to assist policy makers to do their job in funding economic growth. More and more the world is going to be funded through markets,” he said. “The FSB needs to evolve; it was set up at a time when banks were front-and-centre. Banks are going to become less relevant.”

Differences between the two groups were underscored over a debate on whether to designate certain asset managers as systemically important in the same way as lenders and insurers. Iosco said last week that it was not a priority, jeopardising a joint project with the FSB due to report by November.