HM Treasury (HMT) published a 48-page discussion paper entitled ‘Risk, reward and responsibility: the financial sector and society’ on 10 December 2009
The paper will be of interest to all persons working in the financial sector and maybe appealing to anybody with a more general interest in financial stability, regulation and supervision.
The recent global financial crisis has seemingly called into question the balance of risks, rewards and responsibilities between society and the financial sector, and has shown the inability of government to manage effectively withou a high cost to taxpayers when uncontrolled risk-taking for short term gain becomes excessive.
The G20 Finance Ministers and leaders have committed to implementing higher regulatory and supervisory standards to ensure greater cooperation, improve consistency and guard against excessive risks. The FSA have already issued PS09/15 Reforming remuneration practices in financial services
The G20 has asked the International Monetary Fund (IMF) to prepare a report on the range of options that countries have adopted to ensure that the financial sector makes a fair and substantial contribution to the costs of government interventions to repair trust in the banking system. This HM Treasury paper is intended to inform that review and to contribute to the wider international debate on these issues.
The paper considers ways in which the financial sector might contribute to the potential costs of any residual risks it poses to taxpayers and to broader social objectives. It points out that any solutions will need to be:
Global – some measures can only be implemented at a global level, while others require agreement and coordination on the principles as a minimum to be effective;
Non-distortionary – Damaging reductions in liquidity and inefficient allocation of capital must be avoided and the possibility of avoidance minimised;
Stability enhancing – Proposals must support and not undermine the regulatory action already being taken to enhance the stability of the international financial system and the global economy. This is likely to mean any option could not be implemented for several years;
Fair and measured – financial services must be able to continue to contribute to economic growth and any additional costs should be distributed fairly across the sector. A thorough assessment of the impact of measures on the financial sector must be conducted prior to implementation.
Ahead of the IMF report in April 2010, the UK Government will continue to work closely with international partners, the Financial Services Authority (FSA) and the Bank of England, and to engage with the financial sector to ensure that the recovery from the crisis is strong, sustainable and fair.
