The 571-page report from the Parliamentary Commission on Banking Standards pulls no punches as it sets out a rash of reforms to an industry that has lost the trust of the British public in the wake of a series of damaging scandals, from Libbor-rigging to PPI mis-selling.

Beyond the big picture headlines relating to boardroom compensation and the regulatory agenda, the report deals with a number of important cultural shifts and technical challenges that have the scope to drive significant change in the sector.

Finextra has delved through the weighty document and pulled out some of the more pertinent issues for our readership:

Payments system regulation

• We welcome the Government's Damascene conversion to bring payments systems under economic regulation and establish a new competition-focused, utility-style regulator for retail payments systems, along the lines originally proposed by Sir Donald Cruickshank in his 2000 review of competition in UK banking. The current arrangements, whereby a smaller bank can only gain access to the payments system via an agency agreement with one of the large banks with which it is competing, distort the operation of the market. Such agency agreements place small banks at a disadvantage, because the large banks remain in a strong position to dictate the terms on which indirect access to the payments system can be secured by smaller banks, even if there is currently no evidence of them doing so. The Government's proposed reforms will, however, continue to leave ownership of the payments system largely in the hands of the large incumbent banks. Continued ownership of the payments system by the large banks could undermine the proposed reforms, in view of the scope such ownership gives them to create or maintain barriers to entry. The Commission therefore recommends that the merits of requiring the large banks to relinquish ownership of the payments system be examined and that the Government report to Parliament on its conclusions before the end of 2013.

Peer-to-peer and crowdfunding platforms

• Peer-to-peer and crowdfunding platforms have the potential to improve the UK retail banking market as both a source of competition to mainstream banks as well as an alternative to them. Furthermore, it could bring important consumer benefits by increasing the range of asset classes to which consumers have access. This access should not be restricted to high net worth individuals but, subject to consumer protections, should be available to all. The emergence of such firms could increase competition and choice for lenders, borrowers, consumers and investors.
• Alternative providers such as peer-to-peer lenders are soon to come under FCA regulation, as could crowdfunding platforms. The industry has asked for such regulation and believes that it will increase confidence and trust in their products and services. The FCA has little expertise in this area and the FSA's track record towards unorthodox business models was a cause for concern. Regulation of alternative providers must be appropriate and proportionate and must not create regulatory barriers to entry or growth. The industry recognises that regulation can be of benefit to it, arguing for consumer protection based on transparency. This is a lower threshold than many other parts of the industry and should be accompanied by a clear statement of the risks to consumers and their responsibilities.
• The Commission recommends that the Treasury examine the tax arrangements and incentives in place for peer-to-peer lenders and crowdfunding firms compared with their competitors. A level playing field between mainstream banks and investment firms and alternative providers is required.

Account portability

• The Commission recommends that the Treasury establish an independent panel of experts to consult widely and report on account portability. The panel should not have current industry representatives amongst its membership. Membership of the panel should be drawn from banking IT specialists, retail banking competition experts, economists, representatives of retail consumers and small businesses and resolution specialists. It should report within 6 months of its establishment on switching and within 12 months on other issues. The panel, as part of its work, should examine the implications of the central storage of consumer data, implicit in the common utility platform proposal. It should also examine the scope for reducing downwards from seven days the time it will take to switch under the new switching service.

Chief risk officer

• Each bank board should have a separate risk committee chaired by a non-executive director who possesses the banking industry knowledge and strength of character to challenge the executive effectively. The risk committee should be supported by a strong risk function, led by a chief risk officer, with authority over the separate business units. Boards must protect the independence of the Chief Risk Officer, and personal responsibility for this should lie with the chairman of the risk committee. The Chief Risk Officer should not be able to be dismissed or sanctioned without the agreement of the non-executive directors, and his or her remuneration should reflect this requirement for independence.

Gender bias on the trading floor

• The culture on the trading floor is overwhelmingly male. The Government has taken a view on having more women in the boardroom through the review carried out by Lord Davies of Abersoch and his recommendations that FTSE 100 companies increase the number of women directors who serve on their boards. If that is beneficial in the boardroom so it should be on the trading floor. The people who work in an industry have an impact on the culture of that industry. More women on the trading floor would be beneficial for banks. The main UK-based banks should publish the gender breakdown of their trading operations and, where there is a significant imbalance, what they are going to do to address the issue within six months of the publication of this Report and thereafter in their annual reports.

Criminal charges for reckless behaviour

• The Commission has concluded that there is a strong case in principle for a new criminal offence of reckless misconduct in the management of a bank. While all concerned should be under no illusions about the difficulties of securing a conviction for such a new offence, the fact that recklessness in carrying out professional responsibilities carries a risk of a criminal conviction and a prison sentence would give pause for thought to the senior officers of UK banks.

Read the full report: