UK Banking Chief Warns of Regulation Risks

The head of the British Bankers Association (BBA) has warned David Cameron's government of the risks associated with imposing regulation on the City of London without the rest of the world following suit.

Sharon Lorimer

"The Far-East is getting on with driving growth. Europe needs to be careful not to look inwards," BBA chief Angela Knight told CNBC in an interview.

"The UK banks already have rules in place on remuneration and performance following changes to the rules in 2009. The majority of bankers' pay already has to be paid in shares," Knight added.

UK Financial Services Minister Mark Hoban said, quoted by Reuters, that the government now has the opportunity to send a "clear message" that the banking system operates in a way that "no longer rewards employees based on short-term performance whilst leaving investors and taxpayers exposed to the long-term risks."

"A key way of regaining public trust will be by reforming the system of remuneration," Hoban told the British BBA annual dinner late on Monday.

The UK government is due to publish soon a consultation paper on a bank levy on large banks' balance sheet. The tax, which will come into force starting next year, was agreed in last month's emergency budget.

"My concern is that without other nations implementing the rules agreed on at the G20, the UK will find itself at a disadvantage. International business needs international regulation," Knight said.

UK banks will pass EU stress tests, the results of which will be published on July 23rd, she said.

"We hope the process eases pressure on banks within the euro zone," Knight added.

Amid criticism of UK banks failure to lend, Knight told CNBC that there is simply not the demand for debt from customers.

"People are paying back debt and restoring the health of their balance sheets, the demand is not there," she said.

- Watch the full interview with Angela Knight above.