| Synopsis: |
This report examines remuneration in the City of London, as well as the nexus of private actors, including non-executive directors, institutional shareholders, auditors and credit rating agencies, who failed to act as a check on, and balance to, senior managers and the executive boards of banks. The report concludes that the banking crisis has exposed serious flaws and shortcomings in remuneration practices in the banking sector and, in particular, within investment banking. Other conclusions set out in this report include: the Committee is concerned that the Financial Services Authority's (FSA) Turner Review downplays the role that remuneration played in causing the banking crisis and questions whether the regulator is attaching sufficient priority to tackling the issue. The Committee notes the culture in the City of London, which encouraged excessive risk taking.Lord Myners' assertion that his precept to the Royal Bank of Scotland (RBS) Board - that there should be no reward for failure - did not represent an adequate oversight of the remuneration of outgoing senior bank staff, and the report casts doubt on the Treasury's decision to rely on the then RBS Board to handle negotiations with these staff without direct Treasury involvement. The financial crisis has exposed serious flaws and shortcomings in the system of non-executive oversight of bank executives. Three problems are noted: the lack of time many non-executives commit to their role, with many combining a senior full-time position with multiple non-executive directorships; in many instances a lack of expertise; and, a lack of diversity. The failure of institutional investors effectively to scrutinise and monitor the decision of boards and executive management in the banking sector may reflect the low priority some institutional investors have accorded to governance issues; in some cases, they may have even encouraged the risk-taking that proved the downfall of some banks. |