None of us should be slaves to models. We will challenge robustly, and some of our challenges will be less welcome than others, that is the nature of what we do. As Mark Carney said recently, this rigour has a purpose. The dangers of using poorly designed models were made all too clear in the banking sector. So the PRA won’t hesitate to withhold approval of an inadequate or opaque model. But, I want to give a commitment from the PRA, my door will always be open to discuss the challenges, and the same goes for my colleagues. My third area might at first hearing sound rather odd as it is conduct risk or, sadly, misconduct risk. No, I am not making a bid for the FCA – I like Twin Peaks thank you; and the PRA and the FCA work together, and Martin and I put great emphasis on that happening. But as I said earlier we are in many ways in the second phase of the financial crisis, and this phase has at its root conduct of business, towards customers, in financial markets, and in areas of public policy such as financial sanctions and anti-money laundering. At its most serious, this confluence of conduct risk can threaten the safety and soundness of firms. Let me be clear, as a prudential supervisor I do not condone misconduct, and I support Martin and the FCA in what they are doing.
Society expects higher standards, and the PRA supports the FCA in upholding these standards as part of the global effort to restore trust between financial institutions, regulators and – most importantly – the public. Three things strike me as important as part of this effort and I pick these three because they are close to my role and that of the PRA and the wider Bank of England. First, the Fair and Effective Markets Review under my colleague Minouche Shafik, with Martin and Charles Roxburgh, is vitally important to establish the better standards that society reasonably expects. Second, we need better international coordination among authorities to enable conduct risks to be dealt with effectively, but also in ways that do not threaten safety and soundness. That is a high priority. And third, to support credit and borrowing in the economy, and thus growth, we must all work to ensure that people feel confident to use banks and thus overcome the legacy of mistrust from revealed misconduct. The fourth issue on which I want to comment concerns incentives. These lie at the heart of good pro-active supervision, getting the incentives right. Unfortunately, we see areas where that has not happened. I want to cover two of those. The first is remuneration. Once again there is a lot being said on this subject. My view has not changed.