Repeated scandals at the trading desks of major banks show that the sector's compensation needs to be regulated to stop encouraging risky behavior and misconduct, Mark Carney, governor of the Bank of England, said.
"Fundamental changes are needed to institutionally alter compensation," Carney told an audience at the Monetary Authority of Singapore lecture seri
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Earlier this month, regulators across multiple jurisdictions fined six banks more than $4 billion for their roles in rigging foreign-exchange rates. The Financial Conduct Authority cited failure to improve practices after probes into the rigging of Libor rates -- an investigation which netted around $6 billion in fines on its own.
"Such repeated fines underscore that massive penalties alone are not sufficient to address the issues," Carney said.
He noted that the U.K. has introduced remuneration codes, with at least 40 percent of bonus payments deferred for at least three years, and funds are exposed to clawbacks for up to seven years if evidence of misconduct emerges.
"Prior to the crisis, we had compensation schemes that overvalued the present and heavily discounted the future and that encouraged risk taking and short termism," he said, adding that he has requested G-20 leaders create compensation standards.
Carney, who is in the rare position of having headed more than one central bank, also said he was concerned that new European rules that cap the size of bonuses will also limit the ability to cut or hold back compensation for industry players. In that case, fixed pay may need to be put at risk, he said.
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In addition, senior management needs to be held personally responsible for setting cultural norms at their institutions, Carney said.
"The excuse of having delegated responsibility will no longer wash," he said, adding that the link between seniority and accountability appears to be severed in some cases. "In the aftermath of the crisis, the public was rightly angered that many leaders and senior management that were responsible for some of the misdeeds of that crisis were allowing cultures to develop where misconduct took place [and then] walked away," Carney said.
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The U.K. parliament has established a stronger framework for delegating responsibility to individual executives and board members, Carney noted.
—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1