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London - Britain announced a clamp-down on abusive practices in financial markets on Wednesday after a string of scandals involving the banking system, and Bank of England (BoE) Governor Mark Carney said "the age of irresponsibility is over."
Under the proposals, criminal penalties for insider trading would be extended to Britain's huge fixed-income, currency and commodity (FICC) markets and jail sentences for offenders would be lengthened to up to 10 years.
So-called "rolling bad apples" or individuals who are fired from financial firms would no longer be able to move to another job without their new employer knowing about their history.
And thousands more senior staff would be on the hook to make sure their teams stick to the rules, although unlike bankers they will not automatically be presumed to be responsible for misconduct on their watch, potentially weakening the proposals' impact.
Bank of England Governor Mark Carney said central banks had shared in the failings of the system in the past.
The new accountability rules would extend to him and his deputies at the BoE which was caught up in a foreign exchange scandal last year.
Carney said real markets were key for prosperity. "Not markets where transactions occur in chat rooms. Not markets where no one appears accountable for anything," he said.
His comments were made in excerpts of an annual speech he was due to give to London's finance industry chiefs.
The Fair and Effective Markets Review (FEMR) - which aims to plug gaps in rules for the foreign exchange market in particular - was ordered by British finance minister George Osborne a year ago after British banks were fined billions of pounds in 2013 for trying to rig a widely used interest rate benchmark, the London Interbank Offered Rate or Libor.
Some of the same banks were hit later by more fines for trying to manipulate the $5trn-a-day foreign exchange market even as the Libor rigging was being revealed.
"Individuals who fraudulently manipulate markets and commit financial crime should be treated like the criminals they are - and they will be," Osborne said.
The 100-page review was put together by the BoE, the Financial Conduct Authority (FCA), Britain's top markets regulator, and the finance ministry.
Britain has already introduced a law to prevent manipulation of eight major market benchmark rates, including those at the centre of the Libor and foreign exchange scandals.
The British Bankers' Association welcomed the widening of the rules to trading firms beyond banks.
Rob Moulton, a regulatory lawyer at law firm Ashurst, said the changes were not far-reaching but could pave the way for more enforcement action by the FCA.
"Criminalising what has already been earmarked as unacceptable market practice is not a game changer. It does however increase the pressure on the UK regulator to take its first scalp," said
No more ethical drift
Reaction was mixed to the creation of a new, industry-led Market Standards Board to promote good practice in markets.
"The FCA is there to regulate conduct, and a key part of this is encouraging firms to get their culture right," said Simon Morris, a lawyer with law firm CMS. "We don't need an overlapping conduct standard body to issue high-sounding codes with few real powers to back them up."
Carney said firms would face tougher rules if they did not follow the new body's recommendations.
The success of Britain's review will largely hinge on whether regulators from other parts of the world follow suit, given the global nature of the markets involved.
Carney, who chairs a global regulators body, the Financial Stability Board, said he would urge his peers to adopt similar measures "to reverse the tide of ethical drift".
The European Union is close to approving a law to tighten supervision of market benchmarks after agreeing to penalise abusive trading practices and inject more transparency into trading.
