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Unite commissioned the Financial Inclusion Centre to develop proposals for reforming the financial system. This report goes in the same direction than UNI Finance and puts employees as well as customers at the centre of the solutions to the global financial crisis.



The proposals set out in the report "Reforming the financial system" take into account the international, European as well as the British levels and fall into four categories:

• A new regulatory architecture
• Accountability of regulators
• A new approach to regulation
• Improved institutional governance and long term investors
• Reforming the banks

1. A new regulatory architecture



The report advocates the establishment of a new International Financial Stability Agency (IFSA) to promote financial stability, and coordinate the prevention and resolution of global financial crises, and an International Financial Regulatory Agency (IFRA) to set and coordinate prudential standards for financial institutions at international level. A similar structure should be created at the European and UK levels, according to the report.



In addition, policymakers must also factor in wider economic and social considerations, such as maintaining access to financial services, maintaining lending to key economic sectors, and wider economy and monetary policy.



2. Accountability of regulators



Weak governance and accountability of regulatory authorities and the absence of meaningful public interest representation at decision making level within those authorities have also played a role in the financial crisis, says the Financial Inclusion Centre. This is why independent public representatives should be part of the decision making process, through representation at the heart of the regulatory system at international, European or UK national level.



3. A new approach to regulation



Robust regulatory standards must apply to all financial institutions, products and jurisdictions to promote confidence, create a level playing field, avoid regulatory arbitrage, and control the shadow banking system. New measures are needed to deal with remuneration policies that cause conflicts of interests between shareholders, firms, employees and consumers and encourage reckless, short-term behaviour.



Such conflicts of interests include: commission and aggressive remuneration practices, aggressive bonus payments, conflicts of interests between non-executive directors and executive directors/senior management, or financial conflicts between lenders, investors and credit rating agencies.



Options to promote sustainable, long-term behaviour include: explicit caps on salaries and bonuses, deferred bonuses paid based on medium term corporate performance with contractual clawbacks or rebalancing total remuneration packages towards more balanced scorecard approach. In any case, performance metrics which measure long term performance need to be incorporated in remuneration policies.



4. Governance of financial institutions and role of long term investors



The corporate governance structures of banks and other lenders should be improved. Banks should be requested to introduce public interest representatives, including trade union representatives, to their main boards. Non-executive directors should play a more active role in holding executive directors to account and managing risk.



5. Reforming the banks



Radical reform of the banking sector is needed. Banks should be separated into distinct entities regulated under different regimes: (i) common good, utility banks with public interest objectives and whose activities would be restricted to core retail and commercial banking services, (ii) investment banks allowed to engage in riskier activities but regulated under a stricter regime and (iii) a strategic investment bank.



Banking should be a universal service obligation to promote financial inclusion.





The executive summary of the report is available under "related files".