As an example, the Fair and 5  Effective Markets Review conducted by the UK authorities concluded that action was needed on various fronts including:  1  See Sterling Seagrave (1995) Bank of England staff calculations. 3 See European Central Bank Financial Stability Review May 2016. The sample covers the 22 global systemically important banks (G-SIBs) and four non-G-SIBs. Legal costs include damages, fines, settlements and litigation. The analysis relies on data based on regulatory, bank and law firm notices, as well as data obtained from banks’ annual reports. 4 Bank of England staff calculations. 5 The Fair and Effective Markets Review: Final Report can be found at: http://www.bankofengland.co.uk/markets/Documents/femrjun15.pdf. 2  2  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  2    Measures to ensure individual and collective accountability for misconduct in firms – eliminating the ability of senior management to absolve themselves of any responsibility for bad behaviour on their watch;    Aligning conduct and incentives so that excessive risk taking and short-term gains do not reap financial rewards;    Bringing industry together to produce market standards and promote adherence to best practice;    Tougher punishments for misconduct and making it more difficult for “bad apples” to roll to other firms. A full progress report on the implementation of these recommendations was published in July 2016. 6  What are some of the broader lessons for other countries from that experience?

My colleague James Proudman, the Executive Director for UK Deposit Takers at the Prudential Regulation Authority, will talk later about the role of supervision in influencing conduct at the firm level. Governance and Accountability  As cases of misconduct were uncovered, too many senior managers pled ignorance about the unethical practices that were taking place on their trading floors. In response, the UK introduced the Senior Managers 8  9  Regime (SMR) , Certification Regime and a set of Conduct Rules . At its heart, the SMR aims to improve governance and culture within financial institutions by ensuring clear allocation of responsibilities and lines of accountability amongst the most senior individuals in firms. The Certification Regime requires firms to assess and certify the fitness and propriety of employees deemed capable of causing ‘significant harm to the firm or its customers’ every year. If misconduct does occur, the SMR includes stronger powers for regulators to hold individuals to account. It includes a statutory ‘duty of responsibility’ that requires all Senior Managers to take reasonable steps to prevent regulatory breaches in areas for which they are responsible. If a regulatory breach does occur, the regulator can impose sanctions on the individual, including financial penalties and suspension. The regime includes two prescribed responsibilities relating to culture - overseeing the development of the firm’s culture and ensuring the adoption of the firm’s culture in the management of the firm. These prescribed responsibilities would typically be allocated to the Chairman and CEO respectively.