29.08.2012
By Simon Miller
The Investment Management Association (IMA) has urged the government to fully adopt the Vikers' proposals in full including preventing retail banks from selling derivatives.
In its submission to the Parliamentary Commission on Banking Standards, the IMA attributed the financial crisis and recent banking scandals to changes in banking structure and incentives over the last forty years, stating that cultural reform cannot properly be addressed without looking at these two areas.
The UK asset management trade body pointed out that underlying incentive structures, which often result in large pay-outs, encouraged traders and executives to take more risk and focus on short-term profit as opposed to prudent management and the long term return on assets.
The IMA also highlighted concerns over interest rate swap sales and believes the Government should review its decision not to follow all of Vickers’ proposals in preventing derivatives selling by retail banks.
Liz Murrall, IMA’s director of Corporate Governance and Reporting, said:"Structural reform, rather than cultural reform, should be a fundamental focus along with the underlying incentives in banks. We previously supported the Independent Commission on Banking’s recommendation about which activities should be outside the ring fence, and would encourage Government to review its decision not to follow Vickers’ proposals in full."
She added: "Moreover, in any final recommendations, it is important to consider any potential negative impact on the UK’s leading position in the international financial services industry and on credit provision to the economy."
The IMA submission can be read here.
Other stories you may find of interest:
Impacting on investment
With emerging markets looking for investment, Simon Miller looks at the rise of impact investment and what risks entails in this socially aware vehicle
Fencing off the risk?
The Independent Commission on banking has set the cat among the pigeons with the recommendation to ring-fence retail operations. Simon Miller looks at how this came about and what unintended consequences could arise
A very British Complex
Greater complexity leads to greater risks for banks according to Professor Simon Collinson, Warwick Business School and the Simplicity Partnership
