UPDATE 2-UK vows jail for reckless bankers in bid to lift standards

* UK to adopt most PCBS proposals to improve bank standards

* Reforms include jailing reckless bosses, registers

* Regulator given mandate to support competition

By Steve Slater

LONDON, July 8 (Reuters) - Britain will adopt a raft ofproposals aimed at raising standards at scandal-tainted banks,including the threat of prison for reckless bosses and greaterscope to claw back bonuses and pensions.

Finance minister George Osborne said on Monday he wouldimplement the main proposals set out by a committee of lawmakerslast month, which also include new registers to better monitorbankers' behaviour.

In addition, he said he would set an objective for the mainbank regulator to promote competition - even though Bank ofEngland officials said last week that goal was covered by otherauthorities and it was important not to complicate regulation.

"Cultural reform in the banking sector marks the next stepin the government's plan to move the whole sector from rescue torecovery and ensure that UK banks demonstrate the higheststandards, and are able to support business and drive economicgrowth," Osborne said.

Many Britons blame bankers' risk-taking for the 2008financial crisis and subsequent economic slump, and their angerwas further fueled by bumper pension pots for failed executives,fines from regulators for most of the top banks, and amis-selling scandal on millions of insurance products.

Britain's Parliamentary Commission on Banking Standards(PCBS) was set up last year after Barclays was finedfor rigging interest rate benchmarks.

Following the endorsement by Osborne, its key proposals willnow be added to the banking reform bill currently in parliament.

Osborne said the clampdown on behaviour was the third leg ofimproving Britain's "flawed financial system", following theoverhaul of regulation to give power back to the Bank of England(BoE) and making big banks restructure and hold more capital.

But some lawyers said some of the proposals were playing tothe public clamour for action and may have limited real impact.

"Proposing that reckless bankers will go to jail undoubtedlychimes with public opinion. However, proving that an offence ofreckless misconduct in the management of a bank as a criminaloffence will be incredibly difficult," said Alistair Graham,litigation partner at law firm Mayer Brown, suggesting thenumber of individuals prosecuted may be small.

NEW REGULATIONS

Osborne said he would work with regulators to better align bankers' pay with their performance, which could allow bonusesto be deferred for up to ten years and allow all of a bonus tobe clawed back when a bank receives taxpayer help.

He also supported a plan to adopt two new registers forsenior bankers and other employees, which will ensure that themost important responsibilities at banks are assigned tospecific individuals and give the regulator more time and scopeto take disciplinary action.

Osborne said he aimed to increase choice in the industry bygiving the Prudential Regulation Authority (PRA), the newindustry watchdog at the BoE, a secondary objective to improvecompetition, and by asking a new payments regulator to study howeasy it is to switch accounts and consider if big banks shouldgive up ownership of the payments systems.

Senior BoE executives were not keen to give the PRA asecondary objective on competition, however, telling lawmakerslast week the Financial Conduct Authority already had the powerto look at that area.

"Beware of asking the regulators to do too many things inone body," said Paul Tucker, BoE deputy governor.

Osborne had already backed the PCBS's proposal to considerbreaking up state-backed Royal Bank of Scotland and hasappointed advisers to assess if its toxic assets - mainly inIreland and commercial real estate - should be put into a "badbank" and run down.

He reiterated the government would not put any more capitalinto RBS.

Osborne did not accept all the PCBS proposals, and refusedto abolish UK Financial Investments, the body that handlesBritain's stakes in RBS and Lloyds.