Osborne backs stringent banking reforms, jail terms for recklessness

UK chancellor of the exchequer, George Osborne said yesterday banking reforms were "the next step in the government's plan to move the whole sector from rescue to recovery".

The coalition has been faulted for failing to implement key recommendations of a high-profile parliamentary report on a clean up of the banking sector even after a government warning that bankers would face jail for reckless misconduct.

In response to the parliamentary commission on banking standards, the government said it would adopt a licencing regime for top bankers, stop payment of bonuses to bosses of bailed out banks and look at ways to increase competition in the industry.

However, the commission failed to adopt ideas for sweeping changes to how the Bank of England was managed and turned down proposals for making banks financially stronger through tightening the leverage ratio, a measure of capital. The Financial Conduct Authority had also not been given a clearer remit to address the issue.

Meanwhile, Osborne has backed tougher rules for the banking industry, including legislation to jail reckless bankers and giving regulators the power to defer bonuses for as long as 10 years.

 ''The government is determined to raise standards across the banking industry to create a stronger and safer banking system,'' Osborne said in a statement. ''Cultural reform in the banking sector marks the next step in the government's plan to move the whole sector from rescue to recovery and ensure that UK banks demonstrate the highest standards, and are able to support business and drive economic growth.''

Pay reform formed part of a programme of sweeping change proposed by the commission, a cross-party group of lawmakers set up last year by Osborne following a series of scandals and five years of poor returns.

The recommendations under adoption would bring about changes that would go farther than introduced by UK regulators following the financial crisis, which forced bankers to wait as long as five years to get their bonuses.

Osborne's legislation would also criminalise ''reckless'' management, meaning executives of failed firms could face jail time.