By Daniel Hunter

The government has published its response to the Parliamentary Commission on Banking Standard's (PCBS) report, Changing banking for good.

This marks the next step in the government's plan to move the UK banking sector from rescue to recovery, and to build a banking sector that upholds the high standard of ethics and professionalism that society expects and underpins a strong, safe and successful banking system that supports the economy.

The government endorses the principal findings and intends to implement the PCBS's main recommendations to address the failings the Commission identified on individual accountability, corporate governance, competition and long term financial stability.

As the Chancellor said during his Mansion House speech, the Commission's central judgment is absolutely right, "High standards in banking should not be a substitute for global success. On the contrary, they can be a stimulus to it".

As a result of the proposals the government intends to strengthen standards in banking by:

- introducing a criminal offence for reckless misconduct for senior bankers. Those found guilty could face a jail sentence
- working with the regulators to ensure bankers' pay is aligned with their performance, including allowing bonuses to be deferred for up to ten years and enabling 100 per cent claw back of bonuses where banks receive state aid
- introducing a tough new regime governing the behaviour of senior bank staff and new rules to promote higher standards for all bank staff
- reversing the burden of proof so that bank bosses are held accountable for breaches within their areas of responsibility
- working with the regulators, to strengthen corporate governance to ensure that firms have the correct systems in place to identify risks and maintain standards on ethics and culture

Competition in the banking sector will also be strengthened by:

- providing the Prudential Regulation Authority (PRA) with a secondary competition objective to strengthen its role in ensuring we have banking markets with effective competition that delivers good outcomes for consumers. This will be in addition to the Financial Conduct Authority's existing competition objective
- on top of introducing 7-day account switching from September this year the government will ask the new payments regulator, once established, to urgently examine account portability and whether the big banks should give up ownership of the payments systems

In his Mansion House speech the Chancellor announced the government will conduct a review to look into the case for splitting RBS into a 'good bank' and a 'bad bank' of risky assets. This was also recommended by the PCBS.

The government's response means that the PCBS's conclusions are being implemented less than a year since it was set up in the wake of the LIBOR scandal last summer. This vindicates the judgement that a parliamentary commission would be swifter and more appropriate than a lengthy public enquiry. This timetable means the government is able to move quickly to implement the Commission's key recommendations on improving the regulation of individuals in banking through amendments to the Banking Reform Bill in the autumn.

These changes are the third part of the government's plans to reform the banking sector that the Chancellor set out in his speech on banking in Bournemouth in February 2013:

- strengthening supervision of the system, placing the Bank of England in charge (these changes took effect in April)
- strengthening the structure of banks, through electrifying the proposed ringfence around retail banks (these changes will be voted on in Parliament on 8 July 2013)
- changing the culture (this forms the heart of the PCBS's recommendations, and which the government is confirming it will implement as of 8 July 2013)
- increasing choice and completion, including as set out above through making it easier to switch accounts (these changes will take effect in September 2013)

Chancellor of the Exchequer, George Osborne, said: "The government is determined to raise standards across the banking industry to create a stronger and safer banking system.

"Last summer I called for a thorough and intensive investigation into how to improve standards in the banking system and the PCBS has delivered. I am pleased to say that the government will implement its main recommendations. Where legislative changes are required we will amend the Banking Reform Bill which is currently before Parliament.

"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."

Secretary of State for Business, Vince Cable said: "If we're to get our economy back on track, we need to get the banking system back on track first. Creating new powers to jail bankers who are reckless with other people's money and getting more competition into banking, is a start. The £4 billion business bank that I'm setting up will also help more small businesses get the cash they need."

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